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Introduction To Microeconomics (Day) Question Paper
Introduction To Microeconomics (Day)
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2011
UNIVERSITY EXAMINATIONS: 2010/2011
FIRST YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
CFU 102: INTRODUCTION TO MICROECONOMICS (DAY)
DATE: AUGUST 2011 TIME: 2 HOURS
INSTRUCTIONS: Answer question ONE and any other TWO questions
Question One
a) Explain the basic assumptions about the shape of an indifference curve. With the help of a diagram
(s) explain consumer equilibrium and show how you can derive an Engel curve from an income
consumption curve (10 Marks)
b) From the following information calculate the marginal product of labour at each level of
employment (5 Marks)
c) The demand equation for a good is QD = 15 – 0.5P and QS = 3 + 2P where P is the price. Calculate
the equilibrium market price and quantity traded for this good. (5 Marks)
d) With the knowledge of elasticity of demand explain why finance minister persistently keep on increasing the price of cigarettes and beer in order to meet domestic budget (5 Marks)
e) With the help of kinked demand curve explain the price war between Safaricom and Airtel as experienced now. (5 Marks)
(Total: 30 Marks)
Question Two
The following is some information about the supply of and demand for small sailing boats (of a
standard design).
Price (£) Quantity Demanded Quantity supplied
10,000 5000 2000
12,000 4500 2500
14,000 4000 3000
16,000 3500 3500
18,000 3000 4000
20,000 2500 4500
22,000 2000 5000
a) Draw an accurate demand and supply diagram to illustrate this data (5 Marks)
b)What is the equilibrium price and quantity traded? (2 Marks)
c) Suppose a subsidy of £1,000 per boat were given to all the original firms supplying small sailing
boats. Add to your demand and supply diagram fro part (a) to illustrate the effect of this on the
market. (5 Marks)
d)What is the equilibrium market price and quantity traded? (2 Marks)
e) A new firm enters the market and the quantity supplied of small sailing boats at each price rises
by 1,000. Add to your accurate demand and supply diagram from part (c ) to illustrate the
effect. How would the equilibrium price and quantity traded be affected by the entry of the new
firm? (6 Marks)
(Total: 20 Marks)
Question Three
The following is some data about costs for a single firm.
Output Total Variable Cost (£) Total cost (£)
0 0 20
1 15 35
2 25 45
3 34 54
4 42 62
5 51 71
6 61 81
7 76 96
8 106 126
9 156 176
a) Identify the level of fixed costs for this firm. (2 Marks)
b) Derive average cost and marginal cost schedules from the data given (5 Marks)
c) If this firm is able to sell all of its output at a fixed price of £15 per unit, how many units should it
sell to maximize its profits and what will its level of profits be? (5 Marks)
d) If the fixed selling price fell to £8 per unit how should the firm respond:
(i) In the short-run;
(ii) In the long-run? (8 Marks)
(Total: 20 Marks)
Question Four
Given below are the demand and supply functions for oil in the world market, where D is demand in
barrels, S is supply in barrels and P is the price per barrel in US$
D = 25.2 – 1.8P
S = 3.6 + 0.6P
Required:
a) Calculate the market equilibrium price of oil in the world market. (5 Marks)
b)What would be the consequences in the market when Oil Producing and Exporting countries
(OPEC) reduce production and when demand for motor vehicles increases? (5 Marks)
c) Highlight the advantages and disadvantages of government intervention policies in setting prices
(10 Marks)
(Total: 20 Marks)
Question Five
a) Briefly outline the characteristics of a perfectly competitive industry in long-run equilibrium
(7 Marks)
b) Briefly outline the characteristics of a monopoly in long-run equilibrium (7 Marks)
c) Why are monopolists often able to earn profits in the long-run whilst perfectly competitive firms are
not? (6 Marks)
(Total: 20 Marks)
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