MACHAKOS UNIVERSITY
University Examinations for 2016/2017
SCHOOL OF BUSINESS AND ECONOMICS
DEPARTMENT OF ECONOMICS
SECOND YEAR ………. SEMESTER SPECIAL EXAMINATIONS FOR DEGREE IN
BACHELOR OF ECONOMICS AND FINANCE,
BACHELOR OF ECONOMICS&STATISTICS
BACHELOR OF ECONOMICS,
EET 200: MICROECONOMIC THEORY II
DATE: TIME:
INSTRUCTIONS TO CANDIDATES
Answer Question ONE and any other TWO questions
QUESTION ONE (30 MARKS)
a) Discuss the conditions under which a perfect competitive firm operates
(5 marks)
b) Explain why indifference curves cannot intersect (3 marks)
c) With the aid of diagrams differentiate between perfect substitutes and perfect
complements. (4 marks)
d) What is meant by the following terms as used in economics, with the aid of a diagram:
i. Opportunity cost
ii. Isoquant
iii. Consumer Rationality (6 marks)
e) Consider a monopolist facing an average revenue function given by P=280-4Q. In
addition, his total cost is given by TC=20+10Q2. Find:
i) His profit maximization output level (Q*) and the maximum profit (π*).
(5 marks)
ii) Indicate clearly his first and second order conditions for profit maximization
(4 marks)
iii) From your solution above, calculate the monopolist’s sales maximization quantity,
price and the maximum revenue (3 marks)
Examination Irregularity is punishable by expulsion Page 1 of 2
University Examinations for 2016/2017
SCHOOL OF BUSINESS AND ECONOMICS
DEPARTMENT OF ECONOMICS
SECOND YEAR ………. SEMESTER SPECIAL EXAMINATIONS FOR DEGREE IN
BACHELOR OF ECONOMICS AND FINANCE,
BACHELOR OF ECONOMICS&STATISTICS
BACHELOR OF ECONOMICS,
EET 200: MICROECONOMIC THEORY II
DATE: TIME:
INSTRUCTIONS TO CANDIDATES
Answer Question ONE and any other TWO questions
QUESTION ONE (30 MARKS)
a) Discuss the conditions under which a perfect competitive firm operates
(5 marks)
b) Explain why indifference curves cannot intersect (3 marks)
c) With the aid of diagrams differentiate between perfect substitutes and perfect
complements. (4 marks)
d) What is meant by the following terms as used in economics, with the aid of a diagram:
i. Opportunity cost
ii. Isoquant
iii. Consumer Rationality (6 marks)
e) Consider a monopolist facing an average revenue function given by P=280-4Q. In
addition, his total cost is given by TC=20+10Q2. Find:
i) His profit maximization output level (Q*) and the maximum profit (π*).
(5 marks)
ii) Indicate clearly his first and second order conditions for profit maximization
(4 marks)
iii) From your solution above, calculate the monopolist’s sales maximization quantity,
price and the maximum revenue (3 marks)
Examination Irregularity is punishable by expulsion Page 1 of 2
