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Econ 210: Intermediate Microeconomics Question Paper

Econ 210: Intermediate Microeconomics

Course:Bachelor Of Commerce

Institution: Kabarak University question papers

Exam Year:2008

INSTRUCTIONS:
1. Answer question ONE and any other TWO questions
1 a) (i) Define an indifference curve (2 marks)
(ii) Identify the assumptions on which indifference curve analysis of demand is based.
(4 marks)
iii) Explain why consumers indifference curves do not intersect (4 marks)
(b) A consumer spends all her income on food and clothing. At the current prices of food
(Pf) = sh. 10 and price of clothing (Pc) = Sh.5, she maximizes her utility by purchasing
20 units of food and 50 units of clothing.
(i) What is the consumer’s income? (2 marks)
(ii) What is the consumer’s marginal rate of substitution of food for clothing at the
equilibrium position? (3 marks)
(c) Peter’s budget line relating good x and good y has intercepts of 50 units of good x and
20 units of good y. If the price of good x is Ksh. 12: Determine;
(i) Peter’s Income (2 marks)
(ii) The Price of good y (2 marks)
(iii) The slope of the budget line (3 marks)
(d) With the use of indifference curve analysis, show the substitution and income effects
for a normal good in case of a price decrease. (8 marks)
2. (a) Use indifference curves to explain what happens to the demand for an interior
good as consumer’s real income increases at constant relative prices.
(6 marks)
(b) There are two commodities x1 and x2 on which a consumer spends his entire
income in a day. He has utility function U = 1 2
x x . Find out the optimal
quantities of x1 and x2 is prices of x1 and x2 are Ksh. 5 and Ksh. 2 respectively
and his daily income equals Ksh. 500. (14 marks)
3 (a) i) Define Isoquant (1 mark)
ii) Explain the general properties of isoquants (4 Marks)
(b) Explain the following term:
Marginal rate of Technical substitution between factors (MRTSLK)
(3 marks)
(c) 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 (MPL) (3 marks)
(ii) Determine the average product function (APL) (3 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)
4 (a) Identify the conditions necessary for perfect competition to prevail in the market
(8 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 prices (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) (3 marks)
5. a) With the use of isoquants distinguish between increasing returns to scale,
constant returns to scale and decreasing returns to scale
(9 marks)
b) Distinguish between positive economics and welfare economics
(2 marks)
c) Capital- labour ratio has been increasing in the Kenyan manufacturing industry
over time. What possible explanations can you offer for this increase in capital
intensity? (9 marks)

Econ 210: Intermediate Microeconomics Question Paper

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