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Econ 210 Y2s1 Question Paper

Econ 210 Y2s1

Course:Bachelor Of Commerce

Institution: Kabarak University question papers

Exam Year:2009

INSTRUCTIONS:
1. Answer question ONE and any other TWO questions.
PLEASE TURN OVERPage 2 of 4
QUESTION ONE
a) Explain why consumer’s indifference curves;
i) Have negative slope (2mks)
ii) Do not intersect (2mks)
iii) Are convex to the origin (2mks)
b) i) What is a budget line? (1mk)
ii) Explain what the intercepts of budget line on the x-axis and y-axis show.
(2mks)
iii) Explain the effect of increase in income on the budget line (2mks)
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 sh.12, determine;
i) Amit’s income? (2mks)
ii) The price of oranges (2mks)
iii) The slope of the budget line. (3mks)
d) With the help of indifference curve analysis, show the substitution and income
effects for a normal good in case of a price increase. (8mks)
e) Identify the reasons why the marginal rate of substitution diminishes. (2mks)
QUESTION TWO
a) Utility function of an individual is given by U = f(x,y) = x 4
3
y
4
1
. You are
required to find out the optimal quantities of the two goods using lagrangian
method, if it is given that price of good x is sh.6 per unit, price of good y is sh.3
per unit and income of the individual (I) is equal to sh.120. (14mks)
b) Use indifference curves to explain what happens to the demand for an inferior
good as consumer’s real income increasesat at constant relative prices.
(6mks)Page 3 of 4
QUESTION THREE
a) i) Explain the general properties of isoquants. (4mks)
ii) What do you understand by the term marginal rate of technical
substitution between factors (MRTSLK) (3mks)
b) A biscuit producing company has the following variable cost function;
TVC = 200Q – 9Q2
+ 0.25Q3
If the company’s fixed costs are equal to Ksh.150, determine;
i) Total cost function (2mks)
ii) Marginal cost function (2mks)
iii) Average variable cost function (2mks)
iv) Average total cost function. (2mks)
v) At what output levels average variable cost and marginal cost will be
minimum. (5mks)
QUESTION FOUR
a) Identify the conditions under which price discrimination is possible.
(5mks)
b) A discriminating monopolist is selling a product in two separate markets in which
demand functions are;
P1 = 12 – Q1
P2 = 20 – Q2
The monopolist total cost function is;
TC = 3 + 2Q
Required:
i) Determine the prices to be charged in the two markets and amount of
output to be sold in each market so that profits are maximized.
(6mks)
ii) Calculate the total profits to be made from the strategy of price
discrimination. (5mks)
c) Explain the various features of a perfectly competitive market. (4mks)Page 4 of 4
QUESTION FIVE
a) Explain the following concepts;
i) Constant returns to scale (5mks)
ii) Increasing returns to scale (5mks)
iii) Decreasing returns to scale (5mks)
b) Explain why the concept of production is useful in the analysis of firm’s behavior.
(3mks)
c) Distinguish between positive economics and welfare economics. (2mks)

Econ 210 Y2s1 Question Paper

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