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Managerial Economics Question Paper
Managerial Economics
Course:Master Of Business Administration
Institution: Kenyatta University question papers
Exam Year:2009
KENYATTA UNIVERSITY
INSTITUTE OF OPEN LEARNING (IOL)
UNIVERSITY EXAMINATIONS 2008/2009
EXAMINATION FOR THE DEGREE OF MASTER OF BUSINESS
ADMINISTRATION
BBA 501:
MANAGERIAL ECONOMICS
DATE: Wednesday, 7th January, 2009
TIME: 9.00 a.m. – 12.00 p.m.
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INSTRUCTIONS:
Answer any THREE questions.
Q.1
a)
Define the following terms as applied in game theory.
i)
Sequential game
ii)
Extensive game
iii)
Pay off
iv)
Dominant strategy
v)
Dominated strategy
vi)
Mixed strategy
vii)
Complete information
(Total: 7 marks)
b)
Consider the following game between two grocery stores, where a Supermarket is attempting to force a mon – and pop grocery out of business. To do so, the Supermarket could open a store right next door to the mom – and – pop grocery, but it would prefer that mom and pop just close down. If Supermarket enter and mom – and pop stay the Supermarket gets $2 and mon gets -$5. If Supermarket enter and mom exit the Supermarket gets $3 and mom gets -$10. If Supermarket does not enter and mom stay, the Supermarket gets $4 and mom gets $2. If Supermarket does not enter and mom exit the Supermarket gets $5 and mom gets $0.
i)
Set the above game in a payoff matrix. (4 marks)
ii)
Determine the Nash equilibrium. (4 marks)
iii)
Represent the above game in extensive form. (5 marks)
Q.2
The Sport Company manufacturers a Line of tennis rackets. Part of its production facility is to be replaced by one or two Innovative pieces of equipment. The benefits (net cash flows) will be generated over the four year useful lives of the machines and expectational characteristics are
Probability Annual
Probability
Annual
Cash flow
Cash flow
Alternative 1 0.3
2900 Alternative 2 0.3 0
0.5
3500
0.5 4000
0.2
4100 0.2 8000
Required:
a)
Calculate the expected revenue for each equipment (7 marks)
b)
Calculate the standard deviation for each equipment
(7 marks)
c)
Determine the coefficient of variation for each equipment (4 marks)
d)
On the basis of these findings can you decide which equipment to be adopted. (2 marks)
Q.3
a)
Given the problem below, determine the values of x and y that will
minimize the total cost (TC)
Min. TC = 3x2 + 6y2 – xy
S.t
x + y = 20 (6 marks)
b)
The total cost function given below was estimated for a certain company based on Cobb – Douglas production function.
2
Min TC = 5L + 0.45K
S.t 20L0.54 K0.46 = 100,000
Required:
i)
Determine the optimal combination of labour and capital that will minimize the total cost. (10 marks)
ii)
Calculate the minimum cost. (4 marks)
Q.4
a)
Using diagrams show the relationship between price elasticity of demand, Total revenue and marginal revenue. (5 marks)
b)
Explain the reasons why a company must know the nature of the demand for its product. (5 marks)
c)
Explain the classification of market structure. (4 marks)
d)
Given Q = -3000p + 1000y + 0.05 Pop + 1,500,000C + 0.05A
Where P = Price of commodity
Q = Quality demanded
y = Income
Pop = population
C = Consumption
A = Advertising
Required:
Compute price elasticity at points where P1 = 9,000 and P2 = 9,500, and interpret your results. Assume y = Pop = C = A = 1 (6 marks)
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