Hcob2505:Production Economics Question Paper
Hcob2505:Production Economics
Course:Bachelor Of Commerce
Institution: Meru University Of Science And Technology question papers
Exam Year:2013
QUESTION ONE – (30MARKS)
(a) Distinguish between the following concepts as applied in production economics: (i) Economics of scale and economies of scale. (4 Marks) (ii) Minimum efficiency scale (MES) and learning curve effect. (4 Marks) (iii) Cost complimentaries and incremental cost. (4 Marks) (iv) Technical efficiency and allocative efficiency. (4 Marks) (b) The revenue of a company is related to the advertising (a) and the quantity sold (q) as per the following functions = 520 52 + 21 + 15 4.52 + 5 The budget constraint is given as: 2 + = 10 Determine the value of q and a that maximizes revenue subject to the constraint. (10 Marks) (c) Explain the theory of absolute advantage. (4 Marks)
QUESTION TWO – (20 MARKS)
(a) Supposing that a firm’s total cost function is given as: = 100 .2 + 12 + 22 (i) If the firm produces 2 units of good 1 and 4 units of good 2 do cost complimentaries exist? (4 Marks)
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(ii) Do economies o scope exist for this firm. (2 Marks) (iii) How will the firm’s total cost of production be affected if it decides to discontinue the production of good 2. (4 Marks)
(b) A manufacturer’s production is modeled by the Cobb-douglas function of this nature. ? ? 4 1 4 3 100, y xyxf ? . Where x represents units of labour and y represents units of capital. Each labour unit costs 200 and each capital unit costs 250. The total expenses for labour and capital cannot exceed 50,000. Find the maximum production level. (10 Marks)
QUESTION THREE – (20 MARKS)
(a) Given the following equation 8 .0
8.0
120 ? ? QKL . Determine (i) Average product of labor. (2 Marks) (ii) Average product of capital. (2 Marks) (iii) Marginal rate of technical substitution. (4 Marks) (iv) Returns to scale. (2 Marks) (v) Marginal product of labour and capital. (4 Marks) (b) Given the following equation for average variable costs. = 120 + 7 + 0.52
Determine (i) Marginal cost function. (2 Marks) (ii) At what output levels will average cost and marginal cost be at minimum. (4 Marks)
QUESTION FOUR – (20 MARKS)
(a) Using a diagram, discuss the stages of the law of variable proportions. (10 Marks) (b) Assume that a firm’s cost function is given by the following relationship. = 20 + 5 + 2 . Where Q represents the level of output produced and sold. Demand for the product of the firm is given by = 25 (i) Determine the output level where total profits are maximized. (4 Marks) (ii) Calculate the total profits and selling price of the product at profit maximizing output level. (4 Marks) (iii) If the fixed costs increase from 20 to 25 what would be its effect on profit maximizing output level and total profits earned by the firm. (2 Marks)
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QUESTION FIVE – (20 MARKS)
A firm produces two products A and B. Each unit of B takes twice as long to produce as one unit of A and if the firm were to produce only A it would have time to produce 2000 units per day. The availability of raw materials is sufficient to produce 1500 units per day of both A and B combined. Product B requires a special ingredient and only 600 units can be made per day. If A fetches 2 Ksh as profit per unit and B a profit of 4Ksh per unit. Find the optimum product mix. (20 Marks)
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