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Advanced Microeconomic Theory I Question Paper

Advanced Microeconomic Theory I

Course:Master Of Arts In Economics

Institution: Kenyatta University question papers

Exam Year:2009

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
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?

Advanced Microeconomic Theory I Question Paper

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