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Cfu 102 Introduction To Microeconomics (Weekend) Question Paper

Cfu 102 Introduction To Microeconomics (Weekend)

Course:Bachelor Of Commerce

Institution: Kca University question papers

Exam Year:2011

1
UNIVERSITY EXAMINATIONS: 2010/2011
FIRST YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
CFU 102 INTRODUCTION TO MICROECONOMICS (WEEKEND)
DATE: DECEMBER2011 TIME: 2 HOURS
INSTRUCTIONS: Answer Question One and Any Other Two Questions
Question One
a) By use of indifference curve diagram show and explain
i) Consumer Equilibrium (4 Marks)
ii) Perfect substitution and complementing goods (4 Marks)
iii) Income and substitution effect of a fail in price of an inferior or giffen good
(4 Marks)
iv) Outline four main features of a free market economy. (4 Marks)
v) Using a demand and supply diagram, explain the effects on the labour market of the
introduction of minimum wage at a level above the existing equilibrium wage rate
(4 Marks)
vi) Briefly explain four reasons why collusive agreements by oligopolists to restrict
output tend to be unstable (3 Marks)
vii) From the following information calculate the marginal cost of each level of output
Output Total Cost
1 10
2 20
3 40
2
4 80
5 125
6 180
(3 Marks)
viii) Explain why the production possibility curve for economy might shift outwards
(4 Marks)
Question Two
a) i) Explain the key characteristics of a firm operating in monopolistic competition.
(10 Marks)
ii) The diagram below shows a firm operating in monopolistic competition:
iii) Identify and explain the profit maximizing level of output and price. (3 Marks)
iv) Calculate the total profits earned at the profit maximizing level of output. Explain
your answer. ( 3 Marks)
v) Identify the level of output which will produce a normal profit. Explain answer.
(20 Marks)
Question Three
The following is some data about costs for a single firm
Output Total variable Cost Total Cost
0 0 0
1 15 20
3
2 25 35
3 34 45
4 42 54
5 51 62
6 61 71
7 76 81
8 106 96
9 156 126
a) Identify the level of fixed costs for this firm. (2 Marks)
b) Derive average cost and marginal cost schedule from the data given. (5 Marks)
c) If this firm is able to sell of its output at a fixed price of £ 15 per unit, how many units
should it sell to maximize 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 (8 Marks)
ii) In the long-run
Question Four
Sharp frost in Brazil in summer of 1994 sent coffee prices soaring to an eight year high as fear
were raised that the 1995/ 96 coffee harvest would be damaged. Brazil accounts for a quarter of
world coffee production. Other major produces in Africa and Central America were frost free.
a) What is the likely short-run and long-run effect of the Brazilian frost on coffee growers in
Africa? (7 Marks)
b) Explain the likely effect of the frost on the demand for tea (7 Marks)
c) What would be the economic effect of worldwide publicity in 1995 which claimed that the
caffeine in coffee was a potential health risk? (6 Marks)
Question Five
a) Explain how a fixed per unit tax on the producers of a competitively produced good would
affect the price at which it was sold and the quantity traded. How is the burden of the tax
distributed between consumers and producers? (14 Marks)
b) Explain which kind of goods a government should tax if its objective is to maximize tax
revenue. ( 6 Marks)

Cfu 102 Introduction To Microeconomics (Weekend) Question Paper

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