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Econ 110: Introduction To Microeconomics March 2010 Question Paper

Econ 110: Introduction To Microeconomics March 2010

Course:Bachelor Of Economics And Mathematics

Institution: Kabarak University question papers

Exam Year:2010

COURSE CODE: ECON 110
COURSE TITLE: INTRODUCTION TO MICRO ECONOMICS
STREAM: Y1S1
INSTRUCTIONS:
1. This paper contains five (5) questions.
2. Answer question ONE (1) AND ANY OTHER TWO (2) questions
3. Question ONE carries thirty (30) marks and all other questions carry twenty (20) marks each.
4. Use appropriate diagrams where necessary to illustrate your answers.

QUESTION ONE - COMPULSORY ( 30 MKS)
a) A single commodity market model is represented the following equations.
Q = 25 – 5P …..(i)
Q = -8 + 6P …... (ii)

Where Q is the quantity and P is the price of the commodity..
(i) Which of the two equations represent; a demand, a supply function and why?
(5 marks)
(ii) Calculate the equilibrium price and quantity of the commodity? (5 marks)
(iii) Using the demand function derive the total revenue and the marginal revenue
equations. (5 marks)
(iv) What will be the price elasticity of demand and supply when the market is in
equilibrium. ( 5 marks)
b) Starting from the short run equilibrium position of a profit maximizing firm, explain the
process of the long run equilibrium position of the firm
under perfect competition. ( 10 marks)

QUESTION 2
a) Define cross price elasticity of demand and indicate by giving examples the nature of
commodities when cross price elasticity of demand is negative. (4 marks)
b) Define price elasticity of supply and explain its determinants. ( 6 marks)
c) Explain the necessary and sufficient conditions for a consumer to be said to be in
equilibrium. ( 8 marks)
d) When is the price elasticity of demand said to be perfectly inelastic? (2 marks)

QUESTION 3
a) Distinguish between the necessary and sufficient condition for the equilibrium of the
firm. ( 5 marks)
b) Show that price (P) is equal to marginal revenue (MR) in a perfectly
competitive market. (5 marks)
c) Define monopoly and state any three sources of monopoly. (4 marks)
d) A firm under perfect competition is a price taker while a monopolist firm is a price
maker. Why is this case? (6 marks)

QUESTION 4
a) What do you understand by short run and long run periods in production? ( 4 marks)
b) What is meant by the technology of the firm? (2 marks)
c) Explain why the short run cost curves are U- shaped. (6 marks)
d) The data below shows the production of a hypothetical product.

Out put (Q) units 0 1 2 3 4 5 6 7 8

Total Cost (TC) shs. 20 28 34 38 48 58 68 77 87

Using the above data, define and determine:
(i) Total fixed cost. (2 marks)
(ii) Average variable cost when output equals 5 units. ( 3 marks)
(iii) Marginal cost of the 4th unit of output. (3 marks)

QUESTION 5
Distinguish between the following pairs of economic concepts and provide appropriate
illustrations.

a) Opportunity cost and marginal cost ( 4 marks)
b) Marginal utility and marginal product. (4 marks)
c) Change in quantity demanded and change in demand. (4 marks)
d) Budget line and isocost line. (4 marks)
e) Transitivity and consistency of consumer choice. ( 4 marks)

Econ 110: Introduction To Microeconomics March 2010 Question Paper

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