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Economics Revision Questions Question Paper
Economics Revision Questions
Course:Cpa Part I
Institution: Strathmore Business School question papers
Exam Year:2004
3.5 THE THEORY OF PRODUCTION
QUESTION EIGHTEEN
(a) What are factors of production? (6 marks)
(b) Explain the meaning of mobility of factors of production. To what extent are factors of
production mobile. (7 marks)
(c) (i) State the aspects of significance of factor mobility (3 marks)
(ii) What policy recommendations would you suggest to reduce regional development
imbalances if any in developing countries? (4 marks)
(Total: 20 marks)
QUESTION NINETEEN
(a) What are the main factors of production? (4 marks)
(b) (i) Define the term ‘production function’ (2 marks)
(ii) What determines the supply and demand of the factors of production that you have identified in (a) above? (14 marks)
(Total: 20 marks)
QUESTION TWENTY
(a) (i) State the law of variable proportions (2 marks)
(ii) What key assumptions underlie this law? (6 marks)
(b) Discuss fully the three main stages associated with the law (12 marks)
(Total: 20 marks)
QUESTION TWENTY-ONE
(a) What is ‘Oligopoly’? (2 marks)
(b) Using a well illustrated diagram, explain why prices are ‘sticky’ downwards under an
oligopolistic market structure (12 marks)
(c) Using a well-illustrated diagram, show that a monopolist can make losses in the short-run even
when MC = MR (6 marks)
(Total: 20 marks)
QUESTION TWENTY-TWO
(a) What is meant by economies and diseconomies of scale? (6 marks)
(b) Write explanatory notes on the various types of internal and external economies of scale.
(14 marks)
(Total: 20 marks)
QUESTION TWENTY-THREE
(a) Differentiate between economies of scale and returns to scale (4 marks)
(b) Given a firm’s demand function Q – 90 +2P = 0 and its average cost function
AC = Q2 – 8Q + 57 + 2/Q, determine the level of output which maximizes profits (NB: only
the first order condition is required). (8 marks)
(c) (i) Explain why a firm in perfect competition may continue in the production of goods which it
can only sell at a loss and why it cannot continue doing this indefinitely. (4 marks)
(ii) Illustrate and explain the short-run supply curve of a firm in perfect competition (4 marks)
(Total: 20 marks)
QUESTION TWENTY-FOUR
A monopoly firm is faced with the following demand function
P = 13 – 0.5Q
The Marginal Cost function for the firm is given by 3 + 4Q and the total fixed cost is 4.
Determine:
a) The profit maximizing output. (6 marks)
b) The level of supernormal profit if any. (3 marks)
c) The output level at the break-even point. (2 marks)
A firm operating in a perfectly competitive market has to sell all its output at the price of Sh.10 per unit. Its marginal cost function is given by Q + 4 and the total fixed cost is 1.
Determine:
d) The profit maximizing output level. (6 marks)
e) The level of supernormal profit if any. (3 marks)
(Total: 20 marks)
QUESTION TWENTY-FIVE
a) Explain what is meant by the terms transfer earnings and economic rent of a factor of production. (4 marks)
b) Using well labelled diagrams, illustrate cases when the total factor payments may equal to economic rent, or transfer earnings or shared between the two. (6 marks)
c) i) Briefly explain and illustrate quasi-rent. (4 marks)
ii) Discuss some of the economic implications of a rising trend in the rural-urban migration and offer policy recommendations to reverse it. (6 marks)
(Total: 20 marks)
QUESTION TWENTY-SIX
The total cost equation in the production of bacon at some hypothetical factory is
C = 1000 + 100Q – 15Q2 + Q3
Where C = Cost measured in shillings, while Q = quantity measured in kilogrammes.
a) Compute the total and average costs at output level of 10 and 11 kilogrammes. (6 marks)
b) What is the Marginal cost of the 12th Kilogramme? (4 marks)
c) Explain the shape and relationship between AC,AVC,MC and AFC curves using relevant diagrams. (10 marks)
(Total: 20 marks)
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