INTRODUCTION TO MICROECONOMICS

MJ
    1. Clearly differentiate between the following economic terms. Use diagrams where necessary
      1. Marginal Rate of Substitution and Marginal Opportunity Cost
      2. Change in Supply and Change in Quantity Supplied
  • Cardinal Utility and Ordinal Utility (10 Marks)
  1. Highlight the limitations of Cardinal Approach to Utility in consumer theory                                                                                          (4 Marks)
  2. The Market Economy (Capitalism System) is based on the forces of demand and supply. However the efficiency of such system is not always matched in reality since it is characterized by significant weaknesses that are collectively referred to as market failure. Briefly discuss some of the ways in which the Market System can fail      (5 Marks)
  3. Using diagram(s) compare and contrast between equilibrium of a Monopolist and that of a Perfectly Competitive firm in the short-run                                                                                                                                          (8 Marks)
  4. Given the demand and supply functions for Oranges in Maasai Mara University as

Qd = 10- ¾P

Qs = -15 + 6P

Where Qd and Qs are quantity demanded and quantity supplied respectively and P is price of oranges. Calculate the equilibrium quantity and price of oranges                                                                                   (3 Marks

    1. Briefly discuss the importance of the concept of elasticity in decision making                                                                                     (6 Marks)
    2. Given the demand for coffee as

Qc = 20 – 2Pc + 4Pt

Where Pc = Ksh. 40 is price of coffee and Pt = Ksh. 60 is the price of its substitute, tea. Calculate:

  1. Own price elasticity of demand for coffee
  2. Cross price elasticity of demand (4 Marks)
    1. Equilibrium in consumer theory is attained by the interaction between the forces of supply and demand. Using a diagram, explain the effect of the following on the equilibrium
      1. increase in consumer’s income
      2. Reduction in the prices of resources/inputs (5 Marks)
    2. Briefly discuss the properties of Indifference Curve             (5 Marks)
    1. State the Law of Diminishing Returns (2 Marks)
    2. Briefly discuss the relevance of the Law of Diminishing Returns to business decision making (8 Marks)
    3. Given the following Average Total Cost function

ATC = 0.016q2 – 0.7q + 15 + 10q-1

Determine the functions for:

  1. TC
  2. TVC
  • MC
  1. AVC
  2. AFC (10 Marks)
  3. Kantai Ltd. produces and sells a product in two markets given by the following demand functions:

Q1 = 600 – 20P1

Q2 = 400 – 5P2

 

Where Q1 and Q2 are the quantities sold in the two markets at prices P1 and P2 respectively. Kingstone’s total cost function is given as

TC= 0.05Q2 + 1000 and Q= Q1+ Q2

  1. Calculate the quantities and prices that maximizes Kantai’s profit
  2. What is Kantai’s maximum profit
  3. Identify and comment on the nature/form of market separation in the above case
  4. Explain the conditions necessary for Kantai to charge different prices in the two markets             (20 Marks)
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