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Microeconomics Question Paper

Microeconomics

Course:Bachelor Of Arts In Economics

Institution: Kenyatta University question papers

Exam Year:2009

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KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2009/2010
FIRST SEMESTER EXAMINATION FOR THE DEGREE OF MASTER
OF ECONOMICS
SPECIAL / SUPPLEMENTARY EXAMINATION

EET 502 - ADVANCED MICROECONOMIC THEORY II

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DATE: TUESDAY 1ST
DECEMBER 2009 TIME: 9.00 A.M. – 12.00 NOON

INSTRUCTIONS
Answer ALL thE FOUR QUESTIONS

1. Consider a market with aggregate demand Q = 24 –P where Q is the amount
demanded and P is the price. In the following parts of this question, assume that all
firms have the following cost function.
C(0) = 0 and C(q) = q2
+ 4q + q if q > 0, where q is the output of the firm: Page 2 of 2
2 If a single firm acts as a price-setting monopolist, what is the firm’s optimal
price and quantity?
ii) If four (4) firms act as competitive price-takes, what is the equilibrium price
and output for each firm?

3. Using appropriate examples explain each of the following:
i) Pareto efficient allocation in consumption.
ii) Why a monopolist operates only where the price elasticity of demand is
greater than 1 in absolute terms.
iii) Pigovian taxes as a solution to the problem of inefficiency caused by
production externalities.

4. A market with aggregate demand given as Q = - 0.5P + 22 has two identical firms
where cost function is C(q) = 4q + 2q2
where P is the market price and q is the
output of the firm. If the two firms act as Cournot- Nash duopolists, what is the
equilibrium output for each firm? What is the equilibrium price?

Microeconomics Question Paper

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