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Economics Question Paper
Economics
Course:Bachelor Of Economics
Institution: Daystar University question papers
Exam Year:2011
1a) Give and explain the reasons for the downward- sloping demand curve.
b) Discuss and illustrate the exceptions to the law of demand.
c) Distinguish between a stable and an unstable equilibrium.
d) Explain and illustrate the three characteristics of an indifference curve for a rational consumer.
e) Using an individual’s labour supply curve, explain the substitution and income effect.
f) Distinguish and illustrate the demand curve faces a firm in perfect competition, monopolistic competition and monopoly industries.
2. a) Kidum’s utility function is given by. The price per a unit of and is Ksh 20 and 30. Kibowen has Ksh 400 to spend. Determine the number of unit of each commodity that he should buy so as to maximize his utility
b) Distinguish between movement along and shift of the demand curve.
c) Explain why a government may require initiating price controls. Distinguish and discuss the effects of the government fixing a maximum and a minimum price.
A consumer chooses between two normal goods and . The price per unit of and is and respectively.
Using indifference curve and budget line, illustrate the consumer’s equilibrium position given that he has a budget M.
Supposing there is a fall in the price of holding the price of constant, illustrate the new equilibrium while distinguishing substitution and income effect.
4. a) (i)The demand and total cost functions facing a firm are respectively given as:
(ii) Determine the profit-maximizing output for the firm.
b) The supply function for oranges is given as . Determine the price elasticity of supply at P = Ksh 10.
c) The long-run equilibrium for a perfectly competitive firm exhibits both productive and allocative efficiency. Explain and illustrate.
5. a) Explain the conditions under which a monopolist is able to price discriminate.
b) Illustrate and explain the equilibrium for a monopolist who is able to separate his market into two.
c) One of the solutions to monopoly power is the “contestable markets”. Illustrate and explain the equilibrium under contestable markets and show its benefit to consumers.
6. a) Explain the factors that account for the U-shaped nature of the long run Average Total Cost (ATC).
b) A certain firm combines both capital and labour for production. Currently the firm employs 5 units of capital. In the short run, the firm can vary the number of units of labour. The total product is more labour is employed is given on the table below. Each unit of the product produced is sold at ksh 5. Each unit of labour goes for ksh 25.
Labor input L
(Number of Workers)
Total Product of Labor
Q = (TPL)
(Tons of Ore)
0 0
1 6
2 21
3 34
4 49
5 64 6 65
7 67
8 67
Determine MPL, APL, TR, marginal revenue product of labour (MRPL) and marginal factor cost of labour (MFCL).
How many units of labour should the firm hire?
On the same axis, plot the MPL and APL and show the points of diminishing marginal returns.
72.a) In the context of game theory explain what is meant by Nash equilibrium.
b) Two companies Orbit technologies and Tech-solution Ltd are involved in a war to win a computer market. They plan their campaigns in secret and run them simultaneously. A promotional offer is an integral part of any campaign they run. Both companies choose between offering a lower price, a free printer or an extended guarantee. The pay-offs in terms of expected profits are presented in the matrix below. Determine the Nash equilibrium.
Tech-Solutions Orbit
Lower price Free printer Extended guarantee
Lower price 0, 4 4, 0 5, 3
Free printer 4, 0 0, 4 5, 3
Extended guarantee 3, 5 3, 5 6, 6
c) The figure below shows the extensive form of a game adopted from Waithima, (2011)3:
Where , and are the initial endowments for the manager, public official and the citizen respectively. , and are the transaction cost borne by a bribing manager, bribe amount and the punishment amount. Note that .
From the game, you are required to determine the sub-game perfect equilibrium.
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