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Econ 210 Y2s2 Question Paper

Econ 210 Y2s2

Course:Bachelor Of Economics And Mathematics

Institution: Kabarak University question papers

Exam Year:2010

COURSE CODE: ECON 210
COURSE TITLE: INTERMEDIATE
MICROECONOMICS
STREAM: Y2S2
INSTRUCTIONS:
Answer question ONE and any other TWO questions

QUESTION 1
(a) Explain why consumer indifference curves.
i. Have negative slope (2 marks)
ii. Do not intersect (2 marks)
iii. Are convex to the origin. (2 marks)
(b) (i) What is a budget line. (1 marks)
(ii) Explain what the intercepts of budget line on the x – axis and y – axis show
(2 marks)
(iii) What does the slope of budget line measure? (2 marks)
(iv) Explain the effect of an increase in income on the budget line. (2 marks)
(c) Amit’s budget line relating mangoes and oranges has intercepts of 50 units of mangoes
and 20 units of oranges. If the price of mangoes is shs 12/= Determine;
(i) Amit’s income? (2 marks)
(ii) The price of oranges (2 marks)
(iii) The slope of the budget line (3 marks)
(d) (i) Explain the assumptions on which indifference curves theory is based. (4 marks)
(ii) Use indifference curves to explain what happens to the demand for an inferior good
as consumer’s real income increases at constant relative prices. (6 marks)

QUESTION 2
(a) Draw indifference curves diagrams showing the income consumption curve in the
following cases:
(i) Both x and Y are normal goods. (2 marks)
(ii) Good x is normal good and good Y is inferior good. (2 marks)
(iii) Good X is inferior good and good Y is normal good. (2 marks)
(b) Using the indifference curve analysis show how price effect of a commodity is
decomposed into income effect and substitution effect. (6 marks)
(c) The demand for a commodity is given by:
Q = 20,000 – 60 p
Required:
(i) Compute the point price elasticity of demand at price of sh.200. (2 marks)
(ii) If the objective is to increase total revenue from the sales of the commodity,
should the price be increased or reduced? Explain. (3 marks)

(d) For the following demand function, determine whether demand is elastic, inelastic or
unitary elastic at the given price:
P = 50 – 0.1 Q and the given price = sh. 20 (3 marks)
QUESTION 3
(a) Explain and illustrate the conditions under which a firm under perfect competition may
continue in production while making losses. (7 marks)
(b) A firm is allowed to charge different prices for its domestic and industrial customers. If
P1 and Q1 denote the price and demand for the domestic market then the demand equation
is; P1 + Q1 = 500. If P2 and Q2 denote the price and demand for the industrial market then
the demand equation is 2P2 + 3Q2 = 720. The total cost function is TC = 50,000 + 20Q
Where Q = Q1 + Q2. Determine the price (in shillings) that the firm should charge to
maximize profits.
(i) With price discrimination. (5 marks)
(ii) Without price discrimination. (4 marks)
(iii) Compare the profits obtained in parts (i) and (ii) (4 marks)

QUESTION 4
(a) With the use of isoquants distinguish between increasing returns to scale, constant returns
to scale and decreasing returns to scale. (9 marks)
(b) Capital – Labour ratio has been increasing in the Kenyan manufacturing industry over
time. What possible explanations can you offer for their increase in capital intensity?
(9 marks)
(c) Differentiate between pure oligopoly and differentiated oligopoly. (2 marks)

QUESTION 5
(a) Suppose the general utility function, U= XY is given. You are required to derive the
demand function for good X and good Y. (10 marks)
(b) Consider the following short-run production function (where L is the variable input and
Q is the output). Q = 6L2
– 0.4L3
.
(i) Determine the marginal product function. (2 marks)
(ii) Determine the average product function. (2 marks)
(iii) Find the value of L that maximizes Q. (3 marks)
(iv) Find the value of L at which its average product takes on its maximum
value. (3 marks)

Econ 210 Y2s2 Question Paper

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