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Econ 212: Intermediate Microeconomic Question Paper

Econ 212: Intermediate Microeconomic

Course:Bachelor Of Arts Economics And Sociology

Institution: Chuka University question papers

Exam Year:2013

CHUKA

UNIVERSITY

UNIVERSITY EXAMINATIONS
BACHELOR OF ARTS ECONOMIC AND SOCIOLOGY
ECON 212: INTERMEDIATE MICROECONOMIC
STREAMS: TIME: 2 HOURS
DAY/DATE: WEDNESDAY 17/4/2013 11.30 AM – 1.30 PM
INSTRUCTIONS:

Answer question one and any other two questions
Do not write anything on the question paper
Show your working clearly.

QUESTION ONE (COMPULSORY)

(a) Explain the assumptions of cardinal utility theory and briefly discuss its
weaknesses. [10 Marks]

(b) Suppose a firm in a perfectly competitive market has cost function given as
C=50Q+1/4 Q^2. Determine the supply function of this firm. [4 Marks]

(c) The following production function is given:
y=?2x?^0.5
Where: Y = Output
X = Input.
Letting P be price of the output and W be the price of input derive the corresponding profit function. [6 Marks]

(d) Distinguish between Marginal rate Technical Substitution and Marginal rate of
Substitution. [4 Marks]
(e) Given the following production function; Q=?AK?^(3/4)/L^(1/2)
Required:

(i) Explain what is a homogeneous production function. [2 Marks]

(ii) Calculate the degree of homogeneity of the above function and comment
on the returns to scale. [4 Marks]

QUESTION TWO

(a) Using a well labeled diagram, explain the difference between substitution effect and income effect of an increase in price of a giffen good. [8 Marks]

(b) A consumers direct utility function is given by U=X_1^(1/2) X_2^(1/2); where x_1 and x_2 are two goods. Let P1and P2 be the price of the two goods x_1 and x_2 respectively and M be the consumers income;

(i) Find the corresponding uncompensated demand functions for the consumer.
[5 Marks]

(ii) Derive the indirect utility function of this consumer. [2 Marks]

(iii) Suppose P1 = Ksh. 20 and consumer has an initial income of Ksh.1000. if P1 falls to Ksh.15, how much compensation will be required to maintain the consumer’s utility? Calculate the substitution ad income effect of the price changes. [5 Marks]
QUESTION THREE

3. (a) Discuss the properties of technologies. [10 Marks]

(b) Given the firms production function y=?AL?^? K^(1-?) let w be price of labour and r the price of capital. Suppose the firm aim at minimizing cost of producing the level of output y. set the cost minimization problem and calculate the minimum cost of this firm. [10 Marks]

4. (a) With the help of a well labeled diagram, explain the inefficiency of monopoly. [10 Marks

(b) Using an edge worth box analyse the exchange of two goods between two people and thereafter show the pareto efficiency allocation. [10 Marks]

Econ 212: Intermediate Microeconomic Question Paper

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