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Econ 210 Question Paper

Econ 210

Course:Bachelor Of Commerce

Institution: Kabarak University question papers

Exam Year:2010

INSTRUCTIONS:
1. Answer any THREE questions
2. Question ONE Compulsory

QUESTION ONE
a) State the various characteristics of indifference curves (4marks)

b) i. Define perfect competitive market (2marks)
ii. State the features of a perfectly competitive market. (2marks)

c) The following functions relate the demand and cost functions for a perfectly competitive
firm.

P= 80 (Demand Function)
C= 40Q2 – 80Q + 200 (cost function)

Determine the profit maximizing level of output, price and level of profits.
(6marks)

d) Firm A has the same cost curves with firms B, C, D and E which are all perfectly
competitive firms. The market price is Kshs.100 per unit of goods sold. Tom maximize
profit each firm must produce 800 units. The average total cost (ATC) is 100 and the
minimum variable cost (VC)is Kshs. 48 per unit.

i. Determine each firm’s profit (4marks)
ii. If the price falls 18 Kshs. 80 per unit will the firms continue to produce 800 units?
Explain your answer. (4marks)
e) With the help of a diagram, define
i. Variable cost (1mark)
ii. Fixed cost (1mark)
iii. Total cost (1mark)
iv. Average fixed cost (1mark)

QUESTION TWO
a) By giving examples of each, differentiate the following paired concepts:

i. Indifference curve and indifference map. (2marks)
ii. Price costs and indirect costs (2marks)
iii. Capital goods and finished goods (2marks)

b) Define production (2marks)

c) Given the following cobb-douglas production function:
Q = AKa
Lß

Where
A, a, and B = Constants
Q= OAFPUT
K= Capital
L=Labour Page 3 of 4

Determine
i. Average product of capital (APK) (3marks)
ii. Average product of Labour (APK) (3marks)
iii. The equation that gives the rules of law of returns to scale. (3marks)
iv. From the equation in b (iii) above derive and explain the rules of laws of returns to
scale. (3marks)

QUESTION THREE
a) Mr. Otieno had a firm with the following demand and total cost
(TC) functions.
P1 = 72 – 8Q1 – 3Q2
P2 = 99-3Q1-6Q2
2

TC=3Q1
2
+3Q1Q2+6Q2
2

Find:
i. Average revenue functions for commodities Q1 and Q2 (4marks)

ii. Average cost function with respect to Q1 and Q2. (4marks)

iii. Total revenues for the Otieno’s firm. (4marks)

iv. The profit function for his firm (4marks)

b) Explain the various sources of monopoly power of a monopolist
(4marks)

QUESTION FOUR
a) Define duopoly market structure. (2marks)

c) Discuss, with the aid of diagrams, the efficiency and welfare losses resulting from
the monopolization of a perfectly competitive industry. Clearly display the change
in consumer surplus, change in producer surplus and dead – weight loss.
(6marks)

d) Consider the mar1ket demand curve for a duopoly given by:
P= a0 - a1Q

Each firm has an identical total cost function given by
TC = CQ

i. Determine the reaction function for each firm in terms of
output and constants a0, a1 and c. (6marks)

ii. Compete the cournot’s equilibrium for each firm, market
quantity and price in terms of a0, a1 and c (6marks) Page 4 of 4

QUESTION FIVE
a) i. Define indifference Map (2marks)

ii. Explain the economic in tuition behind the fact that indifference curves are usually
drawn as downwards sloping and convex to the origin.
(6marks)

b) Demonstrate the consumer equilibrium conditions both under cardinal utility theory and
ordinal utility theory and identical. (6marks)

c) Consider the following demand function given by:

M
p=
20P – 400
Where
P= price of good x = 6
M= income =240

If price (p) decreases from 8 to 6, compute the substitution and income effect of price
change and comment on the nature of good x (6marks)

Econ 210 Question Paper

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