Get premium membership and access revision papers, questions with answers as well as video lessons.

Bcom:201:Intermediate Microeconomics Question Paper

Bcom:201:Intermediate Microeconomics

Course:Bachelor Of Commerce

Institution: Chuka University question papers

Exam Year:2010

INSTRUCTIONS:
? Section A is Compulsory ? Answer any two questions in Section B ? Do not write on the question paper
SECTION A
QUESTION ONE
Q.1 (a) Explain the term revealed preference. [4 marks]
(b) Differentiate between Slutsky’s substitution effect and Hick’s substitution effect. [8 marks]
(c) Suppose that the consumer has a demand function for milk of the form; . 10 10 1 1 P m x ? ?
The consumer’s original income was KSh.1500 per week and the price of milk was KSh.30 per litre. Suppose the price of milk increased to KSh. 40 per litre.
2
Determine:
(i) The total change in demand. [4 marks] (ii) The substitution effect. [5 marks] (iii) The income effect. [5 marks]
SECTION B:
QUESTION TWO
Q.2 (a) (i) Differentiate between ordinal and cardinal utility. [4 marks]
(ii) Explain why economists consider ordinal concept superior to cardinal concept in terms of operational value. [3 marks]
(b) Explain the term, indifference curve. [4 marks]
(c) Nicholas has the following utility function; ? ? . 22020, 2 2 yxyxyxu ????
Where x is his consumption of CD’s with a price of KSh.100 and y is his consumption of movie video’s with a rental price of KSh.200. He plans to spend KSh.4100 on both forms of entertainment.
Determine:
(i) The budget constraint equation. [3 marks] (ii) The number of CD’s and video rentals that will maximize Nicholas’s utility. [8 marks]
QUESTION THREE
Q.3 (a) Explain the term, price discrimination. [4 marks]
(b) Outline the three forms of price discrimination. [3 marks]
(c) Under what conditions will a monopolist be able and willing to engage in price discrimination? [3 marks]

3
(d) A monopolist firm sells in two distinct markets. The demand curves for the firm’s output in the two markets are:
Market 1: P1 = 200 – 10Q1 Market 2: P2 = 100 – 5Q2
Where P1 = price in the first market.
Q1 = the amount sold in the first market.
P2 = price in the second market.
Q2 = the amount sold in the second market.
The firm’s marginal cost is;
MC = 10Q
Where Q is the firm’s entire output (i.e Q = Q1 + Q2).
Determine:
(i) How many units the firm should sell in the first market? [3 marks]
(ii) What price it should charge in the first market? [2 marks]
(iii) How many units the firm should sell in the second market? [2 marks]
(iv) What price the firm should charge in the second market? [2 marks]
(v) What price the firm should charge if the Government outlaws price discrimination? [3 marks]
QUESTION FOUR
Q.4 (a) Differentiate between:
(i) Market basket and equilibrium market basket of goods. [4 marks]
(ii) Partial and general equilibrium. [6 marks]
4
(b) Explain the term, Pareto optimality. [4 marks]
(c) David has 3 litres of soft drinks and 9 sandwiches. Jackline on the other hand, has 8 litres of soft drinks and 4 sandwiches. With these endowments, David’s marginal rate of substitution (MRS) of soft drinks for sandwiches is 4 and Jackline’s MRS is equal to 2.
Determine:
(i) Whether this allocation of resources is efficient. [4 marks]
(ii) If it is not efficient, what exchanges will make both parties better off? [4 marks]
-------------------------------------------------------------------------------------------------------

Bcom:201:Intermediate Microeconomics Question Paper

More Question Papers

Popular Exams