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Advanced Microeconomic Theory I Question Paper

Advanced Microeconomic Theory I

Course:Master Of Economics

Institution: Kenyatta University question papers

Exam Year:2010

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2009/2010
FIRST SEMESTER EXAMINATION FOR THE DEGREE OF MASTER OF ARTS

EET 500:
ADVANCED MICROECONOMIC THEORY I

=================================================================
DATE: MONDAY 23RD NOVEMBER 2009
TIME: 9.00 A.M. – 12.00 NOON

INSTRUCTIONS
Answer All the FOUR Questions.

1.
A profit maximizing firm has a production function given as

Ln Y =aLnL + 1
( - a )LnK where L and K are labour and capital respectively and

a is a positive parameter.
i)
Find the firm’s derived demand functions.
ii)
Are the derived demand functions homogeneous? If yes, find the degree of
homogeneity and if not, state why not.

2.
A consumer has the following ordinary demand functions for commodities a and B.

XA = PB PA -1Y

X
-1
B = PA PB Y
Where
PA and PB are the prices of A and B respectively and Y is the consumer’s
income.

Are the above demand functions consistent with utility maximization?

Page 1 of 2

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3.
Assume that a firm has the following profit function.
4
2
2
1
p (P, )
w
60P (w
)-
=
w

1
2

Where P is the output price and W ; are input prices.
i
i)
Find the firm’s supply function and show that it is upward sloping.
ii)
Show that the firm’s inputs are not “given goods.”
iii)
Is the profit function convex in P and W
? Based on your answer to this
i
part of the question, are you willing to revise your answers in parts (i) and
(ii)? If yes, say why and if not, say why not.

4.
A consumer’s utility function is given as
2 3
U (x, y) = x y .

i)
Find the consumer’s compensated demand functions.

ii)
Find the consumer’s ordinary demand functions.

iii)
What percentage of her income does this consumer spend on the consumption
of
commodity
Y?

Page 2 of 2

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Advanced Microeconomic Theory I Question Paper

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