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Econ 210 Question Paper

Econ 210

Course:Bachelor Of Economics And Mathematics

Institution: Kabarak University question papers

Exam Year:2010

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KABARAK UNIVERSITY

UNIVERSITY EXAMINATIONS
2009/2010 ACADEMIC YEAR
FOR THE DEGREE OF BACHELOR OF
ECONOMIC AND MATHEMATICS
COURSE CODE: ECON 210
COURSE TITLE: INTERMEDIATE
MICROECONOMICS
STREAM: Y2S1
DAY: WEDNESDAY
TIME: 3:00 – 5:00P.M.
DATE: 07/04/2010
INSTRUCTIONS:
1. Answer question ONE and any other TWO questions
2. Question ONE is compulsory

PLEASE TURN OVER Page 2 of 4

QUESTION 1
a) (i) Define monopoly. (2 marks)
(ii)Describe the various characteristics of monopoly market. (2 marks)
(b) A perfectly competitive firm has the same cost curves with other firms in the industry. The
market price is Kshs.50 per unit. To maximize profit each firm produces 400 units.
Average total cost is 50 and minimum variable cost is Kshs. 24 per unit.
(i) Compute each firm’s profit. (3 marks)
(ii) If price falls to Kshs. 40 per unit will firms continue at produce 400 units.
Explain your answer. (5 marks)
(iii) If the price falls to Kshs.24 per unit, what will firms do? (3 marks)
(c) Consider the following demands and cost functions far a perfectly competitive firm;
P = 40 (Demand function)
C = 100 + 20Q2 = 40Q (cost function)
Find profit maximizing level of output price and level of profits. (6 marks)
(d) Describe various features of an indifference curve. (4 marks)

QUESTION 2
(a) Explain various forms of direct and indirect competition that the monopolist faces despite
being the only sellers of a commodity with close substitute that limits its market power.
(4 marks)
(b) The demand and total cost functions facing a firm are as follows:
P1 = 26 – 3Q1-Q2
P2 = 33-Q1-2q2
2

TC = Q1
2
+ Q1Q2 + 2Q2
2

Find:
(i) The average revence functions for commodities. Q1 and Q2 (4 marks)
(ii) The average cost function with respect to Q1 and Q2 (4 marks)
(iii) The total revenues for the firm. (4 marks)
(iv) The profits function for the firm. (4 marks)

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QUESTION 3
a) What is production? (2 marks)
b) Giver the following Cobb – Douglas production function.
Q = AK
Lß

Where:
A = Constants
Q = Output
K = Capital
L = Labour
i. Determine the average product of labour. (3 marks)
ii. Determine the average product of capital. (3 marks)
iii. Determine the equation that gives the rules of law of returns to scale. (3 marks)
iv. From the equation in b (iii) above derive and explain the rules for the laws of returns
to scale. (3 marks)
c) Distinguish the following pairs of concepts and five examples of each.
(i) Fixed costs and variable costs (2 marks)
(ii) Direct costs and indirect costs. (2 marks)
(iii) Consumer goods and producer goods. (2 marks)

QUESTION 4
a) Describe an difference curves and explain the economic institution behind the fact that
they usually drawn as downwards sloping and convert to the origin. (5 marks)
b) An individual derives utility from two commodities x andy. Her utility function is
described as
U = x0.2y0.2
If she has a budget of Kshs. 150 and the price of X and y are Kshs.5 and Kshs 10
respectively.
(i) Find the quantities of X and Y consumer will consume so as to maximize utility.
(4 marks)
(ii) Determine the consumer’s Maximum total utility. (3 marks)
(iii) Use the indifference curves analysis and budget line of represent your results in
(a) and (b) above. (3 marks)
c) Show the consumer equilibrium conditions both under cardinal utility and ordinal utility
theory are identical. ( 9 marks)

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QUESTION 5
a) Consider the total utility of commodities A and B below.

Units of Commodity TU TU
A B
0 0 0
1 5 6
2 9 11
3 12 15
4 14 18
5 15 20

Required:
From the schedule above;
(i) How many units of commodity A and B will the consumers buy in order to maximize
utility? If the consumer’s income is 5 and PA =PB =1. (4 marks)
(ii) Compute total utility when the consumer is in equilibrium. (2 marks)
b) Explain with the help of a graph, why consumer whose indifference curve cross is
irrational. (5 marks)
c) A consumer faces a budget line of M=P1A1+P2A2
Write down and graph the new budget constraint if:
(i) The consumer decides to impose a lump sum tax of ? on A1 (3 marks)
(ii) The government decides to impose a quantity tax of t on good A1. (3 marks)
(iii) The government decides to impose a quantity of S subsidy on good A2. (3 marks)

Econ 210 Question Paper

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