Hbc2205:Intermediate Micro Economics Question Paper
Hbc2205:Intermediate Micro Economics
Course:Bachelor Of Commerce
Institution: Meru University Of Science And Technology question papers
Exam Year:2013
QUESTION ONE (30 MARKS)
a) Explain the term public good and highlight the main characteristics of such goods. (5 Marks) b) Assume the following utility function 12 = 12. Derive the demand function both for good one and two. (8 Marks) c) Suppose that the firm faces Kinked demand curve for its products as defined by the following equations. 1 = 200 2 2 = 60 0.4 Suppose the marginal cost is $50. i. Find the price and output level of the firm. (2 Marks) ii. Calculate the firms profit. (3 Marks) d) Using appropriate diagrams and equations describe various types of technology. (6 Marks) e) What is pareto optimality. (2 Marks) f) Explain the main conditions required in order to achieve pareto efficiency. (4 Marks)
QUESTION TWO (20 MARKS)
a) The total cost function below was estimated for a certain firm based on the Cobb-Douglas production function.
2
Minimize = 2 + 0.15
St 1.010.750.25 = 1000
Where TC represents the total cost, L represents the number of labour hours used and k represents the number of hours of machine time used:
i. Determine the optimal combination of labour (L) and machine hours (K) that will minimize total costs. (10 Marks) ii. Calculate the minimum cost that can be incurred by the firm at the optimal level. (5 Marks)
b) Consider the following Cobb-Douglas production function = i. Derive the equation of the isoquant. (2 Marks) ii. Demonstrate that this isoquant is convex with respect to origin. (3 Marks)
QUESTION THREE (20 MARKS)
a) Explain the term price discrimination and reasons why firms engage in this practice. (4 Marks) b) Certain conditions must prevail for price discrimination to occur. Explain these conditions. (3 Marks) c) Assume the monopolistic is faced by the following demand curves: 11 = 100 1 22 = 100 22
Assume that the marginal cost for the monopolist is constant at $20 a unit. i. If it can discriminate what price should it change in each market in order to maximize profits? (5 Marks) ii. What if it cannot price discriminate then what price should it change? (4 Marks) d) Distinguish between the first degree and second degree of discrimination. (4 Marks)
QUESTION FOUR (20 MARKS)
a) Suppose that the consumer has the demand function for good of the form = 10 + 10 Let the original income be ksh. 120 per day and the price of good be ksh. 3 per unit. Suppose that the price of this good falls to ksh. 2 per unit; i. Find the change in demand. (5 Marks) ii. Work out the substitution and income effects of this price change. (10 Marks)
b) Given the following utility function
3
= 1000
1 3
1 3 and the consumers budget as 3000=100x+50y. Determine the equilibrium basket of the consumer. (5 Marks)
QUESTION FIVE (20 MARKS)
a) Explain the concept of externalities and explain the remedies to negative externalities. (8 Marks) b) Given the following average cost function = 7 + 1 Find: i. Fixed costs () (1 Mark) ii. Variable costs () (1 Mark) iii. Marginal MC(y) (1 Mark) iv. Total costs C(y) (1 Mark) c) Differentiate between economic rent and transfer earnings. (2 Marks) d) Discuss any three assumptions of the Ricardian Theory of rent. (3 Marks) e) Briefly describe the three types of equilibrium. (3 Marks)
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