BET 701: ADVNACED MICORCEONOMICS QUESTIONS

1. You are given a utility function of the form u  x1 x 2 and that p1 and p 2 are prices of
05 0 .5

goods 1 and 2 respectively. Derive the expenditure function. (Grace)

1 1 1
2. Given an expenditure function of the form M  2 P1 2 P2 2 u 2 , derive the utility function.
(Sharly)
3. Mwea farmers produce rice from land and labour. The labour cost in Kenya shillings to
produce y bags of rice is c( y )  y 2 . There are 100 identical farms which behave
competitively.
a) What is the individual farmer’s supply curve of rice?
b) What is the market supply curve of rice?
c) Suppose demand curve of rice is DP  200 50P . What is the equilibrium price and
quantity sold?
(Dennis)
4. Consider an industry with the following structure. There are 50 firms that behave in a
y2
competitive manner and have identical cost functions given by c y   . There is one
2
monopolist that has zero (0) marginal costs. The demand curve for the product is given as
DP   100 50P .
a) What is the monopolist’s profit-maximizing price and output?
b) How much does the competitive sector supply at this price?
(Jerry)
5. Suppose a monopolist faces a demand curve of the form DP  10  P and has a fixed
supply of 7 units of output to sell. What is the profit-maximizing price and what are its
maximal profits? (Njeru)