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Agbm 342: Managerial Economics Question Paper
Agbm 342: Managerial Economics
Course:Bachelor Of Agribusiness Management
Institution: Chuka University question papers
Exam Year:2013
CHUKA
UNIVERSITY
UNIVERSITY EXAMINATIONS
EXAMINATIONS FOR THE AWARD OF DEGREE OF
BACHELOR OF AGRIBUSINESS MANAGEMENT
AGBM 342: MANAGERIAL ECONOMICS
STREAMS: AGBM TIME: 2 HOURS
DAY/DATE: THURSDAY 25/4/2013 8.30 AM – 10.30 AM
INSTRUCTIONS:
ANSWER QUESTION ONE AND ANY OTHER TWO
DO NOT WRITE ON THE QUESTION PAPER.
1. (a) Suppose the firm has the following production function Q=?10K?^0.6 L^0.4
Suppose, further that the firms operating budget is ?TC?_0=Shs 500 and the rental
price of labor and capital are Shs 5 and Shs 7.5 respectively.
(i) If the firm’s objective is to maximize output, determine the optimal level
of labor and capital usage. [7 Marks]
(ii) At the optimal input levels, what is the total output of the firm.
[1 Marks]
(b) Suppose that a firm’s total cost function is TC=100-Q_1 Q_2+Q_1^2+Q_2^2
Where Q_(1 ) and Q_2 represents the number of units of goods 1 and 2, respectively.
(i) If the firm produces 2 units of good 1 and 4 units of good 2, do cost
complementarities exist? [2 ½ Marks]
(ii) Do economies of scope exist for this firm? [2 Marks]
(iii) How will the firm’s total cost of production be affected if it decides to
discontinue the production of good 2. [½ Mark]
(c) Assume a monopolist discriminating between a domestic and a foreign market.
The demand function are given as:
D_1 (P_1 )=42-0.2P_1 ? D?_2 (P_2 )=100-0.8P_2
The total cost is given by TC=4,000+20Q Where Q=Q_1+Q_2.
Determine the level of output and price charged in each of the market.
[8 Marks]
(d) Discuss the alternative ways in which a monopolist can price discriminate [9 Marks]
2. (a) Suppose that a consumer’s utility function is U=Q_1^2 ? + Q?_2^2.If P_1=5,P_2=10
and a consumer’s money income is M = 1,000, what are the optimal value of ? Q?_1 and Q_2? [6 Marks]
(b) The total profit equation of a firm is
p(x,y)=-1000-100x-50x^2-2xy-12y^2+50y where x and y
represent the output levels for the two product lines.
(i) Use the substitution method to determine the profit – maximizing output
levels of goods x and y subject to the side condition that the sum of the two product lines equal 50 units. [5 Marks]
(ii) Use the Lagrange multiplier method to verify your answer in part (i).
[5 Marks]
(iii) What is the interpretation of the Lagrange multiplier? [2 Marks]
3. Suppose that an industry comprising two firms producing a homogeneous product.
Suppose that the demand functions for two profit maximizing firms in a duopolistic industry are: Q_1=50-0.5P_1+0.25P_2 Q_2=50-0.5P_2+0.25P_1
Suppose, further, that the firm’s total cost function are ?TC?_1=4Q_¦(1 @ ) TC_2=4Q_2
WhereP_1 and P_2 represent the prices charged by each firm producing Q_1 and Q_2 units of output.
(i) What are the equilibrium price, profit maximizing output levels, and profits for
each firm? [15 Marks]
(ii) Explain the difference between price elasticity and income elasticity of demand
and highlight their importance in managerial economics. [5 Marks]
4. (a) Suppose that a firm jointly produces two goods. Good B is a by – product of the
production of good A. the demand equation for the two goods are.
Q_A=200-10P_A
Q_B=120-5P_B
The firm’s total cost equation is TC=500+15Q+0.05Q^2
(i) What is the profit – maximizing price for each product? [8 Marks]
(ii) What is the firm’s profit [2 Marks]
(b) Write short notes on the following
(i) Goal of the firm [2 Marks]
(ii) Total product of labour [2 Marks]
(iii) Law of diminishing returns. [2 Marks]
(iv) Returns to scale [2 Marks]
(v) Short run production function [2 Marks]
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