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Aec 300 Advanced Microeconomics Question Paper

Aec 300 Advanced Microeconomics

Course:Bachelor Of Education Arts

Institution: Pwani University question papers

Exam Year:2012

UNIVERSITY EXAMINATIONS 2011/2012 ACADEMIC YEAR
3RDYEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF ARTS
COURSE CODE/TITLE: AEC 300: ADVANCED MICROECONOMICS
INSTRUCTIONS Answer question ONE and any other THREE questions
.
Question One
The demand function in a particular industry in Kilifi County is of the form
q =100,÷p2
where q is the quantity demanded and p is the price. The technology in the
p2market is such that each unit can be produced at a constant cost of Ksh.50
a)If the industry is supplied by perfectly competitive firms, what is the equilibrium
price and industry output? What is the price elasticity of demand faced by a
single firm at this price if the firm increases its price?(5 marks)
b)If the industry is supplied by a monopolist, what is the equilibrium price and
industry output? What is the price elasticity of demand faced by the monopolist
at this price if the firm increases its price?(10 marks)
c)If the industry is supplied by two identical oligopolists engaged in
Cournot (simultaneous quantity setting) competition, what is the equilibrium price and
industry output?(10 marks)
Question two
Using the tools of indifference curve analysis and appropriate diagrams, how will a
consumer respond to a fall in the price of a normal good?(15 marks)
Question Three
Suppose that a firm in a perfectly competitive industry makes
chapatti and has a marginal cost function that equals q2
. Thus, the marginal cost of producing the fourth chapatti is 42= 16
a)Is this marginal cost curve compatible with the law of diminishing returns?(3 marks)
b)Suppose the price of chapatti equals Ksh.25. Assume also that for this firm
average variable cost (AVC) is always rising. What amount will the firm produce
in the short run? (Assume fixed costs are zero).(6 marks)
c)Sketch a graph of what total variable costs looks like for this firm, with quantity on the x-axis and total variable costs (TVC) on the y-axis.
Question Four
Write short notes on the following:
i)Marginal physical product(2 marks)
ii)Law of increasing returns(2 marks)
iii)Law of diminishing returns(2 marks)
iv)Euler’s theorem(2 marks)
v)Maximization of utility(2 marks)
vi)Consumer’s equilibrium(2 marks)
vii)General economic equilibrium(3 marks)
Question Five
Suppose there are two goods x1and x2which are being sold for p1and p2 respectively and that the consumer has income m;
i)Write down the budget constraint.(3 marks)

Aec 300 Advanced Microeconomics Question Paper

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