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Managerial Economics Question Paper

Managerial Economics

Course:Master Of Science In Finance

Institution: Kenyatta University question papers

Exam Year:2010

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2010/2011
INSTITUTIONAL BASED PROGRAMME (IBP) – AUGUST SESSION
EXAMINATION FOR THE DEGREE OF MASTER OF SCIENCE (FINANCE)
BBA 501:MANAGERIAL ECONOMICS

DATE: Tuesday, 28th December, 2010

TIME: 9.00 a.m. – 12.00 p.m.
------------------------------------------------------------------------------------------------------------
INSTRUCTIONS:
Answer question ONE and any other THREE questions.
Question One - Compulsory (40 marks)
a)
What is price discrimination(2 marks)
b)
Define price elasticity
(2 marks)
c)
Explain the various factors that affect price elasticity of demand(6 marks)
d)
Critically discuss the characteristics of a perfectly competitive market(6 marks)
e)
Briefly explain the following techniques of demand estimation

i)
Consumer surveys(4 marks)
ii)
Consumer clinics(3 marks)
iii)
Market experiments(3 marks)
f)
Assume that market demand for oranges is given by the equation
Q = 6000 – 1000P

Where Q is the number of oranges demanded each month and P is the price in
Kenya shillings. For a price increase from Ksh.2 to Ksh.3, find the arc price
elasticity.(5 marks)
g)
Giving relevant illustrations, explain the circumstances under which the
monopolist is likely to practice price discrimination.
(9 marks)

Question Two (20 marks)
a)
The University has estimated the following demand functions as:
Qda = 100 – 0.5Pa+ 0.25Pb + 0.9Y + 0.4A + 3C. Where Qda is annual demand for
the university’s services; Pa is average annual price for the university services in
Kenya shillings; Pb is average annual price for the competing university’s
products; Y is income per Capita; C is index for credit facility, and A is annual
advertising expenditure. Assume that the independent variables take the
following values: Pa = Ksh. 1300; Pb = Ksh.1000; Y = Ksh. 2,000; C 1000 and A
= Ksh. 2500.
Required:
i)
Interpret the results of the estimated demand(6 marks)
ii)
Compute the price elasticity of the university’s services
(3 marks)
iii)
Calculate point cross-elasticity of demand(4 marks)
iv)
At the current price level, what effect would an increase in price of the
firm’s products have on total revenue? Support your answer(3 marks)
b)
In relation to the above (a), briefly explain the steps that will be followed in case
of an regression estimation(4 marks)

Question Three (20 marks)
a)
Using diagrams, explain the economic effects of price controls in any economy
giving relevant illustrations where possible.(8 marks)
b)
Using a diagram, explain how a profit maximizing firm will minimize cost while
at the same time maximize output(6 marks)
c)
It has been argued that it is better to license a few “large” firms compared to
“small” firms. Discuss
(6 marks)

Question Four
a)
Differentiate a dominant firm from a monopolist

(2 marks)
b)
Explain the various factors that determine alternatives yielding the greatest

present discounted rate for a dominant firm
(6 marks)
c)
Explain the various indirect cost-based strategies used by firms to achieve and

maintain dominance.(6 marks)
d)
Explain the three dimensions of a firm’s conduct(6 marks)

Question Five
A firm has found its total revenue (TR) and total costs (TC) as follows:

AR = 600 – 3Q

AC = 100 + 2Q
Where Q is output
ii)
Determine the levels of output that will maximize TR, TC and profits(8 marks)
iii)
What is the firm’s level of profit
(2 marks)
iv)
Estimate the elasticity of demand at the equilibrium output and price
(3 marks)
v)
Using relevant illustration(s), explain how firms may acquire dominance in the

market
(7 marks)

Managerial Economics Question Paper

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