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Pcmc 7102:Economic Analysis . Question Paper
Pcmc 7102:Economic Analysis .
Course:Doctor Of Philosophy In Business Administration
Institution: Kenya Methodist University question papers
Exam Year:2013
ECONOMIC ANALYSIS (PCMC 7102) 2nd trimester 2013
KENYA METHODIST UNIVERSITY
SCHOOL OF BUSINESS AND ECONOMICS
END OF TRIMESTER EXAMINATION FOR DOCTOR OF PHILOSOPHY IN BUSINESS ADMINISTRATION AND MANAGEMENT AUGUST, 2013
UNIT CODE : PCMC 7102
UNIT TITLE : ECONOMIC ANALYSIS
TIME: 3 HOURS
INSTRUCTIONS
Answer Question ONE and any other THREE Questions.
Question one carries 40 marks while the rest carry 20 marks each
Question One
Provide a brief theoretical foundation of a consumer’s demand function.
(10 marks)
The following demand function for KIRGIT MOTORS product was estimated
Qda = -0.75Pa+1.5Pb+0.90Y+0.02A+40C+e
Where
Qda is annual demand for Kirgit Motor’s products
Pa is average annual price for Kirgit motors in Kenya shillings
Pb is average annual price for the competing firm’s products
Y is income per capita
C is index for credit availability
A is annual advertising expenditure
Assume that the independent variables take the following values
Pa = Ksh.1, 333,000 Pb=Ksh.1, 050,000 Y = Ksh.20, 000
C = 1.0 and A = Ksh1, 500,000
Interpret the results of the estimated demand
(5 Marks)
Compute point price elasticity of demand for Kirgit products
(10 marks)
Calculate the point cross-elasticity of demand
(5 Marks)
At the current price level, what effect would an increase in price of the firm’s products have on total revenue? Support your answer
(5 Marks)
Would it be viable for the firm to continue incurring more expenses on advertisement? Support your answer
(5 Marks)
Question Two
Consider the following short run cubic production functions, holding constant the firm’s capital inputs
Q = -0.005L3 + 0.30L2
Where
Q = units of output
L = units of labor input
State your understanding of the law of diminishing returns in production
(5 Marks)
Explain three stages of production that results from the law of diminishing returns
(10 marks)
From the above production function advice on the economic stage of production
(5 Marks)
Question Three
The KPLC supplies power to two types of markets the commercial market and the domestic market at different prices. The demand functions by the two users are:
Q1 = 32 – 0.4 P1 commercial users
Q2 = 18 – 0.01 P2 domestic users
Where
Q1 – is demand by commercial users in kilowatt hours
Q2- is demand by domestic users in kilowatt hours
P1 – is the price per kilowatt hour charged to commercial users
P2 – is the price per kilowatt hour charged to domestic users
KPLC’s cost function is given by TC = 50 +40Q where Q is Q1+Q2
Explain THREE circumstances under which KPLC would discriminate between commercial and domestic users
(6 Marks)
Determine the prices per kilowatt hour to both users that would maximize profits for KPLC
(4 Marks)
Compute the price elasticities of demand for each user market. Comment on the relationship between the elasticities and the prices for each user
(10 Marks)
Question Four
Provide a detailed account of the major components of G.D.P in an open economy, measured using the expenditure approach
(10 marks)
A number of macroeconomic variables provide information as to where the country is on the "business cycle roller coaster." Briefly explain the four phases of business cycle in an economy and identify three types of indicators in such a cycle
(10 Marks)
Question Five
The table below describes the recent performance of a hypothetical economy using a number of typical economic indicators
Year REAL GDP
($ billion Consumer
Price Index Unemployment Rate Private Investment $Billion Company Profits ($Billion)
1 200 100 4.3 39 36
2 219 105 4.2 43 39.5
3 231 109 4.5 40 36.8
4 236 112 4.7 38 34.6
Compute the economic growth and inflation rates for each of years 2, 3 and 4
(6 Marks)
Based on these economic indicators which phase of the business cycle is this economy in during year 4? Explain your answer.
(4 Marks)
What type of demand management policies might the government and the central bank implement in year 4? Give an example for each and show the impact using an AD/AS diagram
(10 Marks)
Question Six
At the close of 2011, the rate of exchange between the Kenya shilling and the US dollar hit a record of Ksh.107 for a dollar
Explain three possible causes of the behavior in the value of the shilling
(6 marks)
Explain two effects that this value of the shilling had on Kenyan citizens.
(4 Marks)
With the help of a well labeled diagram, explain how each of the following factors would affect the above exchange rate in Kenya.
A rise in the base rate of interest by the central bank
(5 Marks)
An increase in US tourists into the country
(5 Marks)
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