INTRODUCTION TO MICROECONOMICS

EXERCISES

DATE:27/04/2023
QUESTION ONE
Market demand is an important economic marker because it reflects the competitiveness of a
marketplace, a consumer’s willingness to buy certain products and the ability of a company to
leverage itself in a competitive landscape.
If market demand is low, it signals to a company that they should terminate a product or service or
restructure it so that it is more appealing to consumers. It also provides the total quantity demanded
by all consumers. In other words, it represents the aggregate of all individual demands.
a. Using the following data

(a): P= 125 -0.1Qt

(b): P= 80 - 0.125Qs
(c): P= 720 – 2.5Qq
(i) Find out the total revenue for this market function for the commodity
If the market supply function is given by QS = 11178+11.6P
(ii) With aid of diagram, determine the equilibrium price
b. Discuss the factors of market shift.
QUESTION TWO
Write on the short note on the following.
i. Utility function
ii. Cross elasticity of supply
iii. Normative economics
iv. Monopoly market
v. Duopoly markets
QU
ESTION THREE
A consumer faces the following utility function: D=zt = 10Pz+16Pt=1800 m stands for
budget which is 1800

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 a. Write up the Lagrangian model for this equation
b. Evaluate the first and the second derivatives of λ, z,t
c. Determine the values of z and t

d. Determine the level of marginal utility of income λ

e.Show this on the graph

QUESTION FOUR

By the time the commodities produced are lowered, it signals to a company that they should
terminate a product or service or restructure it so that it is more appealing to consumers. It also
provides the total quantity demanded by all consumers. In other words, it represents the aggregate
of all individual demands and finally any behaviour results the market shift.
With four graphs or more, indicate how new prices and new equilibrium are drawn when the
market equilibrium shifts.

QUESTION FIVE

In NYAMIRAMBO CENTRE , the price of beans increases from 450 to 500 Rwf the quantity
demanded of beans decreases from 40 to 30 kilos, when the price of sugar increases from 1600 to
1800 Rwf, the quantity supplied increases from 100 to 110 tons, When the income of peter
increases from 12000 to 14000 the quantity demanded increases from 12 to 15 tones and when the
price of beans increases from 250 to 300 Rwf, the quantity demanded of peas decreases from 16 to
12 kilos.

Required:
a. From the passage above, outline the types of elasticities that are being studied.
b. Calculate different elasticities and interpreter your answers.
c. 100tons of product A are sold every year at $22 per kilogram, (1ksh=0.0125$) , the cost to
make 500grams exceed price by 5% due to depreciation of Kenyan Shillings against US
dollar. Calculate the profit or loss for producing A.

QUESTION SIX
Suppose Qs=22+0.6t and Qd= 8+0.8t

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At equilibrium point, calculate
i. (tq)0.5+t=z
ii. Use the graph for the market equilibrium if t is the price for this market.

iii. Discuss three factors of production for developed countries and explain why these
are suitable with their production.

QUESTION SEVEN

i. Write down the Cobb Douglas function using three factors of production.

ii. If Q=A.Kz.L1-z

iii. Evaluate the first derivatives, the second and the third derivatives for this
function if z=0.35,0.71, and 0.90

iv. Suppose the number of inputs L=0,1,2,3,4,5,6 the MPL=4 and APL is 4.

Calculate the value of total product of Labour at L=3

i. If TPL=15, calculate MPL and APL at L=4

ii. Calculate MPL at APL=3.4 and total labours at L=5

QUESTION EIGHT
Using the following data, the commodity W has the following indications

(a): P= 300- 0.125Q1

(b): P= 360- 0.0625Q2
(c): P= 900 – 0.167Q3

(i) Find out the market demand function for the commodity
(ii.) Find out the price of W If the market supply function is given by QS = 1680+840
(ii) Find out the total profit in Rfw if the total cost is Q2+10Q-400
(iv) With aid of diagram, show the data on the graph

QUESTION NINE

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 A consumer faces a utility function U= f (X, Y) = xy If X=9 and Y=12 and m as income is 600.

a. State the law of marginal utility

b.Determine the prices of X and Y

c.Determine the level of marginal utility of income λ

c. Show this on the diagram

QUESTION TEN
a. Critically expound four origins of duopoly
b. Discuss the origins of monopolist markets.
c. Discuss factors of demand supply in developed countries
d. Discuss the factors that shift the market demand curve
QUESTION ELEVEN
With clear examples, discuss the reasons of why most of developing economies are still suffering
production capacity, what are the cause of action for this lower production capacity?

QUESTION TWELVE

a. What do you mean by marginal rate of substitution?

b. Examine two factors of budget constraint.

c. Cleary use the diagram to explain indifference curve.

d. Discuss the types of goods with clear examples and the expected signs of elasticities.

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