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Econ 110: Introduction To Microeconomics April 2010 Question Paper
Econ 110: Introduction To Microeconomics April 2010
Course:Bachelor Of Economics And Mathematics
Institution: Kabarak University question papers
Exam Year:2010
COURSE CODE: ECON 110
COURSE TITLE: INTRODUCTION TO MICRO
ECONOMICS
STREAM: Y1S1
INSTRUCTIONS:
1. This paper contains five (5) questions.
2. Answer question ONE (1) AND ANY OTHER TWO (2) question
3. Question ONE carries thirty (30) marks and all other questions carry twenty (20) marks
each.
4. Use appropriate diagrams to illustrate your answers where applicable.
QUESTION 1
a) A utility function of a consumers is given as:
U= f(X,Y)
Where U is total utility and X and Y are commodities. The consumer’s level of income is
represented by I and Px and Py are prices for commodities X and Y respectively. Using this
information;
(i) Define utility. (2 marks)
(ii) Define and illustrate the consumer’s indifference curve stating the underlying
assumption(s). (4 marks)
(iii) Define, explain and derive the marginal rate of substitution between X and Y.
( 6 marks)
(iv) Define and illustrate the consumer’s budget line equitation. (6 marks)
(v) Explain and illustrate the consumers’ equilibrium position stating the necessary and
sufficient conditions. (8 marks)
b) Distinguish between ordinal and cardinal utility theories. ( 4 marks)
QUESTION 2
a) A firm’s demand function is given as:
Q
d
= 25 – 5P
Where Qd
is the quantity of the commodity demanded and P is the price of the commodity.
What will be the firm’s total revenue, average revenue and marginal revenue
functions? (6 marks)
b) Explain why a profit maximizing firm will always equate its marginal revenue to its
marginal cost in order to produce the profit maximizing, output. (6 marks)
c) The table gives the price and quantities demanded for two commodities X and Y.
CIMMODITY X COMMODITY Y
Price (shs.) Quantity (Kgs) Price (shs.) Quantity (Kgs)
20 800 10 700
30 600 30 550
(i) Define cross elasticity of demand. (2 marks)
(ii) Using information calculate the cross elasticity of demand for commodity X given the
prices of commodity Y. ( 4 marks)
(iii) How are the two commodities related? (2 marks)
QUESTION 3
a) Distinguish between a production function and a production isoquant. State the properties
of a production isoquant. (6 marks)
b) By the use of the production isoquants illustrate the increasing and decreasing returns to
scale. ( 6 marks)
c) Explain and illustrate why the marginal revenue curve lies below the average revenue
curve at all levels of output of a firm. (6 marks)
d) What is a production possibility curves? (2 marks)
QUESTION 4
a) Briefly state and explain the basic assumptions of a perfect competitive market structure.
(6 marks)
b) Explain both the necessary and sufficient conditions under which discriminating
monopoly exist. (8 marks)
c) Distinguish between the following pairs of economic concepts:-
(i) Shift of supply curve and movement along supply curves. (2 marks)
(ii) Inferior good and normal good. (2 marks)
(iii) Income effect and substitution effect of a price changes of a normal good.
( 2 marks)
QUESTION 5
a) Define equilibrium price and show what happens in the market when the price is above
the equilibrium price; assuming a state equilibrium. (6 marks)
b) State the law of variable proportions and give its underlying assumptions. (6 marks)
c) Fully explain four applications of the concept of elasticity in an economy. (6 marks)
d) Define and explain the concept opportunity cost. (2 marks)
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