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Aec 200: Intermediate Microeconomics Question Paper
Aec 200: Intermediate Microeconomics
Course:Bachelor Of Commerce
Institution: Kenyatta University question papers
Exam Year:2009
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KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2008/2009
INSTITUTE OF OPEN LEARNING
EXAMINATION FOR THE DEGREE OF BACHELOR OF ARTS, BACHELOR OF
COMMERCE AND BACHELOR OF EDUCATION
AEC 200: INTERMEDIATE MICROECONOMICS
DATE: MONDAY 10TH AUGUST 2009 TIME: 2.00 P.M. – 4.00 P.M.
INSTRUCTIONS
Answer QUESTION ONE and any other TWO QUESTIONS.
QUESTION ONE
a) Show the various states of consumer equilibrium with perfect substitute goods giving
an account of different prices, that is P1<P2, P1>P2, and P1=P2, where P1 and P2 are
prices of good X1 and X2 respectively. Explain your answer as clearly as possible.
(10 marks
b) A consumer is faced by two goods which are imperfect substitutes, with unitary
elasticities with respect to the two goods. Obtain expressions for Hicksian demand
functions. (10 marks)
c) Derive the condition for factor payments in the case of labor for a firm that is
maximizing profits in the short run. Present a graphical presentation for the same.
(10 marks)
QUESTION TWO
a) Derive the relationship between marginal revenue and price elasticity of demand and
explain its significance to the monopolist’s pricing decision. (10 marks)
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b) The following production function is presented to a micro economist in Kenyatta
University.
log Y = 0.34 log X1 + 0.45 log X2. Obtain the following
i) Interpret the coefficients of the function. (2 marks)
ii) Show the returns to scale and the degree of homogeneity. (2 marks)
c) Using microeconomic tools of analysis prove that the slope of the indifference curve
is the ratio of marginal utilities of the goods. (6 marks)
QUESTION THREE
a) Using proper equations, explain the difference between compensating and equivalent
variations. (4 marks)
b) Show the magnitude and the direction of the impact of a tax t on the monopolist’s
price, assuming a constant marginal cost c. (8 marks)
c) Derive the condition for efficiency in consumption assuming two goods. (8 marks)
QUESTION FOUR
a) Differentiate between Slutsky’s and Hicksian substitution effects. (6 marks)
b) Give the following production for a firm:
1 2
Y 2 = X X , derive the conditional and the unconditional factor demand functions.
(8 marks)
c) Using a well labeled diagram, show the dead weight loss and other inefficiencies
associated with a monopolist. (6 marks)
QUESTION FIVE
a) Explain the properties of a production function. (6 marks)
b) With the aid of well labeled diagrams and equations, demonstrate that a firm
operating in the perfectly competitive industry will pay a nominal wage that is
consistent with the value of the marginal product of the worker. (14 marks)
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