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Hbc:Intermidiate Microeconomics Question Paper
Hbc:Intermidiate Microeconomics
Course:Bachelor Of Commerce
Institution: Dedan Kimathi University Of Technology question papers
Exam Year:2012
KIMATHI UNIVERSITY COLLEGE OF TECHNOLOGY
UNIVERSITY EXAMINATIONS 2011/2012
FIRST YEAR THIRD SEMESTER EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
HBC 2241: INTERMEDIATE MICROECONOMIC THEORY
DATE: 8TH AUGUST 2011 TIME: 2.00PM – 4.00PM
INSTRUCTIONS: Answer question ONE and any other TWO questions.
QUESTION ONE (30 MARKS)
a) Distinguish between the following terms;
i) Equilibrium and disequilibrium (4marks)
ii) Marginal rate of substitution and marginal rate of technical substitution (4marks)
iii) Efficiency in production and efficiency in exchange (4marks)
b) Define a public good and describe its main attributes (8marks)
c) Explain what you understand by the term search theory in microeconomics. (10marks)
QUESTION TWO (20MARKS)
a) Using a well illustrated diagram, explain why prices are sticky downwards under an
Oligopolistic market structure. (10marks)
b)(i) Explain what is meant by the terms transfer earnings and economic rent of a factor
of production. (4marks)
ii) Using a well -labeled diagrams, illustrate cases when the factor payments may equal to
economic rent or transfer earnings. (6marks)
QUESTION THREE (20MARKS)
a)(i) Explain why a firm in perfect competition may continue in the production of
goods which it can only sell at a loss and why it cannot continue doing this indefinitely. (4marks)
ii) Illustrate and explain the short – run supply curve of a firm in perfect competition. (5marks)
b) A monopoly firm is faced with the following demand function
P = 13 – 0.5Q
The marginal cost function for the firm is given by 3 + 4Q and the total fixed cost is 4.
Determine;
i) The profit maximizing output (6marks)
ii) The level of supernormal profit if any (3marks)
iii) The output level at the breakeven point (2marks)
QUESTION FOUR (20MARKS).
a)(i) Explain what you understand by the term ‘’economic efficiency’’ in welfare economics. (4marks)
ii) ‘’A cobweb model is used to trace out a time- path from a disequilibrium position towards an
equilibrium position as an illustration of dynamic disequilibrium analysis’’. Explain the use of
this model as an application of disequilibrium analysis. (10marks)
b)Consider the proposal to introduce night flights into an airport which will result in noise
disturbance to nearby residents. Discuss how the relevant authority might employ cost – benefit
analysis and compensation tests to determine the desirability of implementing the proposal.
(6marks)
QUESTION FIVE (20MARKS).
a) There are two neighbors , where one of them has a garden which is unattended and unsightly,
Thereby imposing a negative externality on the other, whose garden is well stocked with
flowers. In what ways might the two neighbors bargain with each other to overcome the
Externality and outline other solutions possible. (10marks)
b) Consider the following demand and supply schedules per time period for a homogeneous type
Of labor;
Wage rate(£): 100 110 120 130 140 150
Quantity demanded: 1,000 8,00 6,00 4,00 2,00 0
Quantity supplied: 0 3,00 6,00 1,000 1,200 1,500
i) Plot the supply and demand curves on the same graph and identify the equilibrium
Wage rate. (6marks)
ii) Calculate the total amount of transfer earnings and economic rent. (4marks)
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