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Econ 111: Principles Of Microeconomics Question Paper

Econ 111: Principles Of Microeconomics

Course:Economics

Institution: Chuka University question papers

Exam Year:2012

1
CHUKA UNIVERSITY
COLLEGE
UNIVERSITY EXAMINATIONS
EXAMINATION FOR THE AWARD OF
ECON 111: PRINCIPLES OF MICROECONOMICS
STREAM: TIME: 2 HOURS
DAY/DATE: FRIDAY 14/12/2012 11.30 A.M. – 1.30 P.M
INSTRUCTIONS:
Answer questions ONE and any other TWO questions.
Do not write anything on the question paper
Show your working clearly.
QUESTION ONE (COMPULSORY)
(a) State whether the following statements are true, false or uncertain. Briefly explain your
answer.
(i) For government to successfully implement a price ceiling, it must set prices below
the equilibrium price. [3 Marks]
(ii) The Engel curve of an inferior good is positively sloped irrespective of the level
of income. [3 Marks]
(iii) All points of tangency between an indifference curve and a budget line are truly
points of maximum utility. [3 Marks]
(iv) If a firm facing an inelastic demand curve, it would be ideal for the firm to lower
its prices if it is to increase its total revenue. [3 Marks]
(v) Under monopoly market, in the long run an industry attains equilibrium when all
firms are earning normal profit. [3 Marks]
2
(b) Consider the following data on firm’s total costs of production.
Quantity produced 0 10 20 30 40 50
Total costs 140 210 250 320 420 560
Given that the total fixed cost is sh.140 calculate the following.
(i) Average total costs [3 Marks]
(ii) Average variable costs [3 Marks]
(iii) Average fixed costs [3 Marks]
(iv) Marginal costs. [3 Marks]
(c) Explain the relationship between Marginal Costs (MC) and Average Total Costs.
[3 Marks]
QUESTION TWO
(a) Explain the factors that determine elasticity of demand. [8 Marks]
(b) Given the following functions under monopoly
Q= 60 - 0.25 P
C= 120 + 80 Q
Required:
(i) Obtain the total profit [2 Marks]
(ii) Obtain the quantity that maximizes profit [5 Marks]
(iii) Explain the sources of monopoly power [5 Marks]
QUESTION THREE
(a) Outline the basic assumptions under the cardinalist and ordinalist approach.
[10 Marks]
(b) Consider a production function:
Q = A K¾
L¼
Obtain the degree of homogeneity and comment on the returns to scale. [5 Marks]
(c) Based on ordinal approach to consumer behavior, show that consumer’s equilibrium is
satisfied when,
MRS
xy = ???
??
?
[5 Marks]
3
QUESTION FOUR
(a) With an aid of a diagram, explain the relationship between total, marginal and average
products. [12 Marks]
(b) The demand function for a service is,
P = 50 - ½Q.
The cost of providing the service is made up of fixed costs of 200 shillings and variable
costs of 0.2 shillings per unit.
Required:
(i) Find the profit function for the service.
(ii) Determine the level of output at which profit is maximized [4 Marks]
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Econ 111: Principles Of Microeconomics Question Paper

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