Managerial Economics Question Paper

Managerial Economics

Course:Master Of Business Administration

Institution: Kenyatta University question papers

Exam Year:2010

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2009/2010
INSTITUTE OF OPEN LEARNING EXAMINATION FOR THE DEGREE OF MASTER
OF BUSINESS ADMINISTRATION
BBA 501: MANAGERIAL ECONOMICS

DATE: Thursday 22nd July, 2010

TIME: 2.00 p.m. – 4.00 p.m.
________________________________________________________________________
INSTRUCTIONS
Attempt ALL the questions.

Q1.
(a)
Giving examples state the shareholders wealth maximization model and
discuss how it can be influenced by managerial decisions.
[8 marks]

(b)
Discuss how managers can adjust for risk when evaluating the firm in a
shareholder wealth maximization model
[7 marks]
Q2.
(a)
A profit-maximizing firm faces the following constrained maximization problem

Maximize: ?(x, y) = 80x – 2x2 – xy – 3y2 + 100y

Subject to: x + y = 12

where:
x=Quantity produced

y=Advertising expenditure
Determine profit-maximizing output levels of output and advertisement subject to
the condition that total output and expenditure equals 12.
[7 marks]

(b)
A firm has the following total revenue and total cost functions

TR = 21Q – Q2
3
Q

TC =? 3 2
Q ? 9Q ? 6
3

Required
(i)
At what level of output does the firm maximize total revenue
[2 marks]

(ii)
At what level of output does the firm maximize total profit?[2 marks]
(iii)
How much is the firm’s total profit at its maximum and the corresponding
price?[4 marks]
Q3.
If firm 1 does not advertise, it earns a profit of $10 million if firm 2 does not advertise
and a profit of $4 million if firm 2 does advertise. If firm 1 does advertise, it earns $20
million if firm 2 does not advertise, and $6 million if firm 2 does advertise. The same
outcome holds for firm 2 depending on what firm 1 does.
(a)
Write the pay-off matrix for this problem.[4 marks]
(b)
If managers are risk averse and have no information about the strategy of the
other firm, what will be the strategy for each firm?[3 marks]
(c)
Explain the importance of demand fore-casting in a firm.[4 marks]
(d)
Using well labeled diagram explain the three stages of production. [4 marks]
Q4.
(a)
Explain in details the characteristics of the following market structure:
(i)
Monopoly[3 marks]
(ii)
Oligopoly[3 marks]
(iii)
Perfectly competitive[3 marks]
(b)
Using well labeled diagrams explain how price and quantities are determined in
the following market structure

(i)
Perfectly competitive
[3 marks]
(ii)
Monopoly
[3 marks]
……………………..

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