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Micro Economic Theory Question Paper

Micro Economic Theory

Course:Bachelor Of Commerce

Institution: University Of Nairobi question papers

Exam Year:2011

UNIVERSITY OF NAIROBI
MODULE II DEGREE PROGRAMME 2010/2011 (DAY)
SECOND YEAR EXAMINATIONS FOR THE DEGREE OF BACHELOR OF COMMERCE
DBA 201: MICROECONOMIC THEORY
INSTRUCTIONS:
Answer all questions
1.a) Using appropriate diagrams in each case explain the short run and the long run laws of production.

b)A commodity is produced under perfectly competitive conditions. Individual firms have U-shaped long run average cost that reach minimum average cost of Ksh.5. per unit of output when 100 units are produced.
The market demand function for the commodity is Q = 4,200,000- 200,000P where Q is quantity demanded and P is the market price per unit.
i) Determine the long run equilibrium price, quantity demanded and the number of firms in this industry ..

ii) Calculate the long run equilibrium profit for each firm

iii)Using clearly labeled diagrams show, side by side, the equilibrium position of both market and individual firm.

iv) State four major features of a perfectly competitive market.

c. The demand function for a pure monopoly firm is Q = 2000 - 20P and the cost function is C = 0.05Q2 + 1000
i)If the firm's objective is to maximize profits, determine equilibrium output, price and profit.

ii) f the monopolist wishes to maximize the value of sales, determine the maximum level of total revenue, the market price and resulting profit/loss made by the firm. [30 marks]
2.State whether each of the following statements is TRUE or FALSE. Substantiate your answer.
a) Given its ability to make the price and being a single firm, the monopolist will never operate at a loss.

b) At equilibrium, the marginal rate of substitution equals input price ratios.

c) In consumer theory, a normal good is one which attracts many customers.

d) The decision making of a firm is essentially cost minimization by the firm.

e) A homogeneous production function shows constant returns to scales. [20 marks]

3.Given that a consumer has a utility function with two goods of the firm U = u(X,Y) and an income constraint M = PxX + PyY, derive mathematically this consumer's utility maximizing conditions.
A consumer's specific preference are given by the utility function U = 4x2 + 3y2 where x, y are two commodities.
i) Find the marginal utility of each good when x = 1 and y = 2

ii) Find the slope of this consumer's indifference curve when x = 1 and y = 2.

iii) Derive the total derivative for U. [20 marks]

Micro Economic Theory Question Paper

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