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Eet 200 Question Paper
Eet 200
Course:Bachelor Of Education Arts
Institution: Kenyatta University question papers
Exam Year:2009
Page 1 of 2
KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2009/2010
FIRST SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR OF
ARTS AND BACHELOR OF EDUCATION AND BACHELOR OF ECONOMIC
AND FINANCE
EET 200: INTERMEDIATE MICROECONOMICS
DATE: Thursday 24th
December, 2009 TIME: 8.00 a.m. – 10.00 a.m.
INSTRUCTIONS
Answer question ONE and any other TWO questions.
Question one
a) Clearly distinguish between the following economic terms. Make use of well
labeled diagram and equations where necessary.
i) Interior optimum and boundary optimum. [3 marks]
ii) Perfect substitute and complementary goods. [4 marks]
iii) Marginal rate of substitution and marginal rate of Technical substitution.
[3 marks]
b) Suppose a consumer has the following Utility function
U (X1X2) =
ß a
2 1 X X subject to P1X1 + P2X2 = M
Derive the demand function of X1 and X2 respectively. [10 marks]
c) Mr. Kimeu has a Nyama choma consumption demand function which is given as
Q = 20 + M/1-P where Q is the quantity of Nyama choma in grams per week, p is
the price per gram per week and M is his income. His income is Ksh.150. If the
price of Nyama choma per gram changes from 3 to Ksh.5. Calculate Mr. Kimeu’s
total price effect, substitution and income effect of the price change.
[10 marks]
Question 2 Page 2 of 2
a) Distinguish between partial equilibrium and general equilibrium analysis.
[4 marks]
b) Construct an edge worth box diagram to show how production, efficiency and
equilibrium is achieved in an economy. [16 marks]
Question 3
A firm produces and sells a product in both the domestic and foreign market. The market
demand functions are given as Q1 = 1200 – 10P1 (Domestic market) and Q2
= 800 – 10P2
(foreign market) where Q1 and Q2 are the quantities sold in the respective markets at
prices P1 and P2 respectively. The firms total cost function is given by
TC = 0.05q2
+ 10000 and Q = Q1 + Q2
a) Determine the quantities and prices that maximizes the firms profits.
[8 marks]
b) What is the maximum profit for the firm? [4 marks]
c) Comment on the form of market separation in the above case. [2 marks]
d) Explain three conditions necessary for the above firm to charge different prices in
the two markets. [6 marks]
Question 4
a) Derive the relationship between marginal revenue and price elasticity of demand
and explain its significance to the monopolist. [14 marks]
b) A monopolist has the following total cost function TC = 40 + 10Q
If the price elasticity of demand is -2, find out what price he will fix for his
product. [6 marks]
Question 5
Given Q = 100K0.5
L0.5
, c = Ksh 1200, w = Ksh30 and r = 40.
a) (i) Determine the quantity of labor and capital that the firm should use in
order minimize the cost. [10 marks]
(ii) What is the level of output produced at this level? [3 marks]
b) Using microeconomic tools of analysis prove that the slope of indifferences curve
is the ratio of marginal utilities of the goods. [7 marks]
………………………
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