UNIVERSITY OF EMBU

2021/2022 ACADEMIC YEAR

FIRST SEMESTER EXAMINATIONS

THIRD YEAR FIRST SEMESTER EXAMINATION FOR THE DEGREE OF

BACHELOR OF ECONOMICS

BES 303: MATHEMATICS FOR ECONOMIST II

DATE: 2 DECEMBER, 2021 TIME: 8.30-10.30 AM

INSTRUCTIONS:
Answer Question ONE and ANY Other TWO Questions.
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QUESTION ONE (30 MARKS)

a). Differentiate between the following terms
i) Hessian matrix and bordered Hessian matrix (2 Marks)
ii) State variable and control variable (2 Marks)

b). Find the stationary point for the following function and determine whether the point is a
local maximum or minimum.

Z=f(x, y) = - 4x2 + 2xy + 2y2 + 2y2 + 2x + -yl7y (5 Marks)

c) Solve the following linear programming problem graphically and give the feasible point
(5 Marks)
Maximize TR= 0.60X + 0.40Y

Subject to x+y<iooo
X+2Y< 1600
2X + Y < 1600

X>O,Y>O

d) The technological inverse for a three sector economy as well as the planned final demand
are given below;

7.;,

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 12.0.3.s
(}-A)'=12.0 :i.s 2.01
2.0 n=H)l=lzool
12.5 4.0 4.51 Lo,,J lsol
Compute the sectoral total outputs that will enable the economy to realize the planned final
demand (4marks)

e).Land bought for speculation is increasing in value according to the formula given below;
V = lOOOe3rl
The discount rate under continuous compounding is 9%. How long should the land be held so
as to maximize the present value? (5 Marks)

f).Explain the assumptions of the Solow growth Model (3 Marks)

g). A two product firm has the following total revenue and total cost functions;
TR = 8Q1 + 1202
22
TC=2Q1 +2Q2
1. Find critical values of Q1 and Q2 (3 Marks)
11. Determine whether the second order condition for maximization is satisfied at 01 and
Q2 (lMark)

QUESTION TWO (20 MARKS)

a) Define the term optimal timing and give its importance in mathematical economics
(5 marks)
b) The consumer utility function and budget constraints are given as;
Utility function U = xy
Budget Constraint 3% + y = 24
Required:
i) Construct the constrained utility maximization problem from the information given
(1 Mark)
Form the corresponding Lagraiigian function (1 Mark)
iii) Find the critical values of x , y and )L (5 Marks)
iv) Establish whether the critical values give rise to maximum utility (2 Marks)
v) Find the maximum utility (1 Mark)

c) Discuss the intertemporal utility function (5 Mark)

QUESTION THREE (20 MARKS)

a) Describe the Harrod Domar Model (7 Marks)
b) Solve the following dynamic optimization problem;
Maximize Z(c(t))= f03(4x - 5yz) dt
Subject to: .i(t) = 8y
x (O) = 2
x (3) = 117.2
Find y"(t) , x"(t) and A"(t) (8 marks)

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 c) Consider the following four sector input - output table
Sectors 1 2 3 4 D
1 %11 -"12 X13 X14 D1
2 X21 -"22 -"23 X24 D2
3 -"31 -"32 X33 -"34 D3 X3
4 X41 -"42 X43 -"44 D4 X5
v V1 V2 V3 V4
x X1 %2 X3 X4
i) How much primary inputs has sector 3 purchased? (1/2 mark)
ii) How much has sector 2 purchased from sector 4? (l/2 mark)
iii) How much output has sector 4 sold to sector 3 ? (1/2 mark)
iv) Sum all the inputs purchased by sector l (l mark)
v) Sum all the outputs from sector 3 (l mark)
vi) FindtheGrossNationalProduct(GNP)byfactorpaymentsapproach(lmark)
vii) How much final demand has sector 3 produced ( 1/2 mark)

QUESTION FOUR (20 MARKS)

a) Differentiate between non-constrained optimization and constrained optimization
(2Marks)

b) Explain the various types of linear Programming problems (6 Marks)

c) A simple multiplier -accelerator interaction model is defined by the following:
Yt = Ct + It + Gt
Ct = Co + Cx(Yt + Yt-x)
It = to ' it Yt-1
Gt = GO
I. Construct a difference equation in Y from the information given.
II. Find:

a) The homogeneous solution (2 Marks)

b) The particular solution (2 Marks)
c) The general solution (2 Marks)
d) The unique solution (2Marks)
d) Briefly explain the intertemporal budget constraint of a household with reference to
Ramsey Cass and Koopmans Model (4 Marks)

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 QUESTION FIVE (20 MARKS)
a) Explain the dynamic input-output model and highlight how different is it from the
static input -autput model (7 Marks)
b) A firm wishing to maximize its output subject to cost constraint has the following
production function and cost function.
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Production Function Q = KoL:

Cost Function 2K + 4L = 40
i) Set up the corresponding maximization problem from the information given (lMark)
ii) Construct the corresponding Lagrangian function (1 Mark)
iii) Find the critical values of L. K and A (5 Marks)
iv) Confirm that the critical values present a maximum (2 Mark)

c). Discuss the Multiplier -Accelerator Interaction Model (4 Marks)

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