UNIVERSITY EXAMINATION 2017/2018

SCHOOL OF BUSINESS AND ECONOMICS

DEPARTMENT OF ECONOMICS

BEC/BECF/BECS/BSFS/BBM/BCOM
WEEKEND

UNIT CODE: BED1101 UNIT TITLE: INTRODUCTION TO MICRO

ECONOMICS

DATE: AUGUST 2018 SPECIAL/SUPPLEMENTARY TIME:2 HOURS

INSTRUCTIONS: ANSWER QUESTION ONE AND ANY OTHER TWO QUESTIONS

1. a) Explain the following terminologies as used in micro economics;

i) Opportunity cost (3 Marks)
ii) Scarcity and choice (3 Marks)
iii) Consumer sovereignty (3 Marks)
iv) Production possibility frontier (3 Marks)

b) Bring out the importance of studying economics (6 Marks)

c) Discuss the advantages and disadvantages of deductive method of economic

analysis. (8 Marks)

d) Use a well labelled diagram to explain the optimal point of production in an

economy. (4 Marks)

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 2. a) Analyze the factors that may lead to exceptional demand curves. (5 Marks)

b) Explain the factors that determines consumer’s demand for goods. (7 Marks)

c) Given a firms function Q-90+2P=0 and the average cost functions AC=Q2-
8Q+57+2Q, determine level of output which maximizes profit (8 Marks)

3. a) Use the data below to determine market price and quantity (6 Marks)
Qd=3550-266P (demand function)
Qs=1526+240P (supply function)

b) What is an oligopoly market? (2 Marks)

c) Use a well illustrated diagram to explain why prices are ‘sticky’ downward
under oligopolistic market structure. (12 Marks)

4. a) Explain why a firm in perfect competition may continue in the production

which it can only sell at a loss and why it does continue definitely (5 Marks)

b) Using a well illustrated diagram show that a monopolistic can be losses in the
short run even when MC=MR (6 Marks)

c) Use the data below to determine price elasticity of demand;

Quantity demanded 4P+2P3-3 when P=1 (8 Marks)

5. a) Analyze the factors that leads to the barriers of labour mobility (6 Marks)

b) Bring out the application of the law of equi-marginal utility (4 Marks)

c) The utility (U) obtained by McKay by consuming food (F) and shelter (S) is
given by utility function U=FC

i) Draw the difference curves associated with utility levels of 12 and 24 utils.
(4 Marks)

ii) If food was costing sh50 per unit and shelter sh 200 per unit and Mackay’s
monthly income is sh 1200 to be spent entirely on these two commodities use
graphical method to determine the utility maximizing choice of food and shelter
for this household. (6 Marks)
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