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Micro-Economics(Buss 111) Question Paper

Micro-Economics(Buss 111)

Course:Business Administration

Institution: Kenya Methodist University question papers

Exam Year:2010

TIME : 2 HOURS
INSTRUCTIONS Answer Question ONE and any Other TWO Questions

Question 1
(a) Explain how the following factors affect the supply of a commodity.
(i) State of Technology (T) (2.5 marks)

(ii) Objectives of the firm (O) (2.5 marks)
(iii) Cost of Inputs (C) (2.5 marks)
(iv) Government Policy (G) (2.5 marks)
(v) Price of a related good (Pr) (2.5 marks)
(vi) Producer’s Expectations (E) (2.5 marks)
(b) Using the Concept of Marginal Utility, illustrate and explain how the Cardinalists are able to provide proof that the demand curve for normal good is downward slopping. (8 marks)
(c) Briefly describe the Kinked Demand Curve model (7 marks)

Question 2
(a) Using a production function with two inputs, capital and labour, and assuming we are operating in the short-run, describe the production process and briefly explain the three (3) stages of production. (10 marks)
(b) Suppose a chair manufacturer is producing in the short-run where equipment is fixed. The manufacturer knows that as the number of labourers used in the production process increases from 1 to 7, the number of chairs produced changes as follows: 10, 17, 22, 25, 26, 25, 23.
(i) Calculate the Average and the Marginal Product of Labour for this production function (7 marks)
(ii) Does this production function shows diminishing returns to labour? Explain (3 marks)

Question 3
(a) Explain how a manager can use the Concept of Price Elasticity of Demand to affect the revenues of the firm (6 marks)
(b) The price of a commodity changes from KSh. 200 to Ksh. 300 resulting in demand changing from 900 units to 2000 units. Calculate and interpret the appropriate demand elasticity. (4 marks)
(c) The Price of good Z changes from Ksh. 100 to Ksh. 300, resulting in the demand for good X changing from 1000 units to 2000 units. Calculate and interpret the appropriate demand elasticity. (4 marks)
(d) Describe the following Concepts
(i) Cross Elasticity of Demand (2 marks)
(ii) Income Elasticity of Demand (2 marks)
(iii) Production Function (2 marks)

Question 4
(a) What is Production Isoquant and what are its characteristics. (8 marks)
(b) Briefly describe the Long-run equilibrium of a Perfectly Competitive firm and briefly explain the Concepts of allocative efficiency and productive efficiency. (8 marks)
(c) Briefly explain the reasoning behind the u-shape of short-run cost curves. (4 marks)

Question 5
(a) Outline FOUR characteristics of a Pure Monopolist. (6 marks)
(b) Explain the short-run equilibrium of loss-making firm and a profit making firm of Perfect Competition. (10 marks)
(c) ‘A Monopolist can always determine both the Price and the output it wants to sell at the same time.’ TRUE OR FALSE. Explain. (4 marks)

Micro-Economics(Buss 111) Question Paper

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