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Cfu 102: Introduction To Microeconomics Question Paper

Cfu 102: Introduction To Microeconomics

Course:Bachelor Of Commerce

Institution: Kca University question papers

Exam Year:2009

1
UNIVERSITY EXAMINATIONS: 2008/2009
FIRST YEAR STAGE II EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CFU 102: INTRODUCTION TO MICROECONOMICS
DATE: APRIL 2009 TIME: 2 HOURS
INSTRUCTIONS: Answer question ONE and any other TWO questions
QUESTION ONE
a) The demand equation for a good is ad = 15 - 0.5p and the supply equation is qs = 3+2p where p
is the price. Calculate the equilibrium market price and quantity traded for this good.
(5 Marks)
b) Define:
(i) An inferior good
(ii) A Giffen good. (5 Marks)
c) Draw a diagram to show a monopoly firm making a profit. In your diagram include the labels:
AR for average revenue. MR for marginal revenue, AC for average cost and MC for marginal
cost. (5 Marks)
d) From the following information calculate the marginal product of labour at each level of
employment:
Number of Total Produce per
Employees per day day
1 12
2 26
3 44
4 64
5 78
6 88
7 96 (5 Marks)
e) Explain why the production possibility frontier for an economy might shift outwards through
time (5 Marks)
f) Explain the relationship between long-run cost curves and economies of scale.
(5 Marks)
(Total: 30 Marks)
2
QUESTION TWO
a) Describe the process through which equilibrium is reached in the market for a particular
commodity. (5 Marks)
b) Analyze the effects on the market equilibrium price and quantity traded on a product of:
(i) Improvements in production methods adopted by all suppliers in the market.
(5 Marks)
(ii) A decrease in the price of a close substitute product. (5 Marks)
(iii) What would happen if the events outlined in parts (i) and (ii) were to occur
simultaneously? (5 Marks)
(Total: 20 Marks)
QUESTION THREE
a) Define own price elasticity of demand (5 Marks)
b) Carefully explain the relationship between the price electricity of demand and the revenue
effects of a price change. (8 Marks)
c) How might an understanding of the price elasticity of demand due of assistance to a cinema
manager contemplating an increase in admission charges?
(7 Marks)
(Total 20 Marks)
QUESTION FOUR
a) Differentiate between fixed and variable costs. (6 Marks)
b) The data below shows a tabulation on production of a hypothetical product.
Output (Q) Units 0 1 2 3 4 5 6 7 8
Total cost (TC)sh 25 32 38 42 48 58 67 78 98
Using the above data, determine
(i) Total fixed cost (5 Marks)
(ii) Average variable cost when output equal 6 units (5 Marks)
(iii)Marginal cost of the third unit of output (4 Marks)
(Total: 20 Marks)
3
QUESTION FIVE
a) State the ideal conditions for perfect competition in a market (5 Marks)
b) Illustrate by use of diagrams the profit maximizing output of a firm in a perfectively
competitive market structure. (4 Marks)
c) State the necessary and sufficient conditions for profit maximization as well as the ideal
conditions for price discrimination for a monopoly (5 Marks)
d) For a price discriminating monopolist, the demand and marginal revenue functions are P1 = 80
– 5Q; P2 = 180 – 20Qs; and MR1 = 80 – 10Q1 and MR2 = 180 – 40Q2
Respectively where:
P1 is price in submarket 1
P2 price in submarket 2
Q1 is quantity demanded in submarket 2
MR1 is marginal revenue in submarket 1
MR2 is marginal revenue in submarket 2
Using the above information, calculate the profit maximizing output in each of the submarkets and the
corresponding prices when the industry’s marginal cost equals 20 units. (6 Marks)
(Total: 20 Marks)

Cfu 102: Introduction To Microeconomics Question Paper

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