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Microeconomics Question Paper

Microeconomics

Course:Bachelor Of Arts Economics

Institution: University Of Nairobi question papers

Exam Year:2011

University of Nairobi
First Semester Examinations 2011/2012
First Year Examinations For the Degree of Bachelor of Arts, Bachelor of Arts in Land Economics and Bachelor of Arts in Quantity Surveying
XET/CEC/BLE/BQS 101/105: Microeconomics
Date: 26th January, 2012 Time: 3.00.P.M.- 5.00.P.M.
Instructions:
-Answer any THREE questions
-All questions carry equal marks
-Time allowed 2 hours
Q1.a) What do we understand by opportunity cost?
Suppose that there are 10 farmers in the economy. Each farmer can produce either 150 bags of maize or 5 bags of wheat per year. Output per farmer is independent of the number of farmers in the economy.
i. Tabulate the alternative possibilities in the production of maize and wheat for the economy.
ii. Draw the economy production possibility frontier.
iii. Explain the slope of the production possibility frontier.
iv. Indicate the points that show inefficient production.
v. Show points of unattainable production and provide an explanation.
b) To what extent can we use production possibility frontier to solve the basic economic problems?
c) Waithera and Anyango are roommates. They spend most of their time studying but they leave some time for their favorite activities: Cooking githeri and Ugali. Waithera takes 4 hours to cook githeri and 2 hours to cook Ugali. Anyango takes 6 hours to cook githeri and 4 hous to cook Ugali.
i. What is each roommate opportunity cost of cooking Ugali?
ii. If each roommate trades off foods with each other, who will trade away githeri in exchange for Ugali?

Q2. The following schedule gives hypothetical demand and income data for Mr. Wabera.
Points
Price of Good
X (Shs) Price of Y
Good (Shs) Q-demand of X Mr. Wabera’s
Income (Shs)
A 10 30 20 3500
B 12 40 35 3000
C 14 50 52 2500
D 16 60 68 2200
E 18 70 72 1500
F 20 80 75 1000

a) i) Calculate the price elasticity of demand for good X between points C and D and interpret it.
ii) Calculate the income elasticity of demand for good X between points C and D and interpret it.
iii) How would you classify good X? Explain.
b) i. Calculate the gross price elasticity of demand for good X with respect to good Y between C and D.
ii) What is the relationship between good X and Y.
c) What are the determinants of elasticity of demand?

Q3. a) You are provided with data in the following table which shows variations in the output of product X as labour is varied.
Labour 1 2 3 4 5 6 7 8 9 10 11
Total
Product 4 9 15 30 50 67 82 96 105 109 108
i) Compute the average and marginal product of labour.
ii) Present a sketch of the marginal and average products of labour and indicate on it points of diminishing returns.
iii) Explain the relationship between the marginal and average products curves.
b) Using a well illustrated diagram, explain the concept of producers’ equilibrium.

Q4. a) Explain why the plant size corresponding to the minimum long-run ATC is the only plant size consistent with long-run equilibrium in the perfectly competitive industry?
b) If a perfectly competitive firm cannot influence its price will it maximize its profits by maximizing its output?
c) The total cost of a firm operating under perfectly competitive market structure is TC = 100 + 2Q + 0.01Q2, where Q is the output per period. Suppose the firm’s MR = £ rm’5. Find the firm’s profit maximizing level of output. Is this firm making profits or losses? What is the firm’s TFC?
Q5. a) zero profits condition only ensures that price equals average total costs. It does not ensure that price equals MC. How relevant is this statement while referring to monopolistic competition verses perfect competition.
b) What conditions must be met for an industry to qualify as a case of monopolistic competition?
c) What do we mean when we say that a firm under monopolistic operates with excess capacity?

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