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INFORMATION AND COMMUNICATIONS UNIVERSITY

END OF SEMESTER EXAMINATION
Course INTRODUCTION TO MICRO ECONOMICS
Time Allowed 3Hours
Date of Examination : DECEMBER 2023
Marks 100
INSTRUCTIONS
1. Answer all Ouestions in Section A: 40 marks.
2. Answer any TwoQuestions in Section B: 20 marks each.
3. Answer One Question in Seetion C: 20 marks.
4. Please write as clearly as possible as illegible handwriting cannot be marked.
5., Number the answers to the questions clearly before answering

SECTIONA: ANSWER ALL QUESTIONS IN THIS SECTION

This section contains two parts, ensure you answer all two (2) parts clearly indicating your
answers.

PART ONE (1)

MULTIPLE CHOICE (20 MARKS)
1. In monopolistic competition, firms differentiate their products to:
.A. Increase production costs
B. Minimize costs
C. Attrat customers in a crowded market
D. Eliminate advertising co_ts

2. If the marginal cost of producing 20 units of output is K25 and the marginal cost of producing
21 units of output is K30, what is the change in total côst when output increases from 20 to 21
A+ cF c

units? TOTLCam
A. K30
B. K25 Chare
C.K5 chergf
D. 55
3. Ifa10% increase in price leads to a 15% decrease in quantity demanded, the demand is:
A. Elastic 2Sk
B. Inelastic
C. Unitary elastic
D. Perfectly elastic
4. What is a common barrier to entry in a monopoly market structure?
A. Low production costs
B. Few buyers operating in the market
C. Easy access to resources
D. Excusive control overa resource or technology
 J.A company has total revenue of k800, 000 and explicit costs of k400, 000. If the economic
profit is k300, 000, what are the
a) K300, 000 implicit costs?
b) Ki00, 000
c) K200, 000
d) K700, 000
w t She Tundamental concept in economics that refers to the limited availab1lity O
resources to satisfy unlimited human wants?
a) Scareity
b)Opportuniíy cost
c) Choice.
d) Derived Demand
Taim produces 100 units of output with 5workers and 120 units with 6 workers,what is the
inargina! productof labor?
A. 20units
(n
B. 15 units
C. 120 units
D. 25 units
8. In a command economy, who typically makes the economic decisions, including what to
produce and how to distribute resources?
a) Private individuals and businesses
b) Central government authorities
c) Market forces and supply and demand
d) Consumers and producers through negotiations
9. Which of the following statements is true if the government places a price ceiling on
petrol at
k21.50 per litre and the equilibrium price is k21.00 per litre?
a. Asignificant increase in the demand for petrol could cause the price ceiling to become a
binding constraint.
b. A significant increase in the supply of petrol could cause the price ceiling to become a
binding constraint.
c. There will be a shortage of petrol.
d. There will be a surplus of petrol.
10. If afirm's fixed costs are k5, 000, variable costs are k10per unit, and it
produces 200units.
what is the total cost?
A. k7. 000
B.k]0. 000
C. k9, 000
D. K2, 000
1. Which of the 1ollowing is considered a factor of production?
A. Price
B. Revenue
C. Labor
D. Demand
12. Which of the following is not a
A.
deterninant of dematnd?
Income of consumers
B. Price of the product
C. Consumer preferences
D. Cost of production
13. In acompetitive market, how is the price determined?
A. By government regulation
B. By the highest bidder
C. Through negotiation between buyets and sellers
D. Through the interaction of supply and demand forces
14. Cross-price elasticity measures the responsiveness of the quantity demanded of one good to a
change in the:
A. Price of another good
B. Income of consumers
C. Cost of production
D.Consumer preferences
15. In the short run, a firm can vary:
A. All inputs
B. Only variable inputs
C. Only fixed inputs
D. Both fixed and variable inputs
16. If a 10% increase in income leads to an 8% increase in quantity demanded, the good is
considered:
A. Basic good
B. Luxury
C. Inferior
D. Inelastic good
the products?
17. In perfect competition, what is the characteristic feature of
A. Homogeneous (identical) products
B. Differentiated products
C. Unique products
D. Luxury products
18.What is third-degree price discrimination based on?
a) The quantity of the product purchased
b)The time of purchase
c) The location of purchase
d)The characteristics of the customer
19. If the price of good X decreases, what happens to the quantity demanded of good Y ifX and
Y are substitutes?
A. Quantity demanded ofY increases
B. Quantity demanded of Y decreases
C. Quantity demanded of Y remains constant
D. Quantity demanded of Y is not affected
 20. Suppose you find K20. If you choose to use the K20 to go to a football match, your
opportunity cost of going to the game is
A. Nothing, because you found the money.
B. K20 (because you could have used the K20 to buy other things) plus the value of your
time spent at the game.
C. K20(because you could have used the K20 to buy other things)plus the value of your
time spent at thegame, plus the cost of the dinner you purchased at the game.
D. K20(because youcould have used the K20to buy other things).
TOTAL: 20 MARKS
PART TWO(2)
QUESTION ONE
A. AtZack's restaurant it is expected that 350 dishes willbe sold at a price of K200each. For
each k4 reduetion inprice, 20 more dishes will be sold. The restaurant is willing to supply 325
pasta dishes at ki00 each. and 475 dishes at k220 each.
() Find the linear demand equation of the pasta dish. (4 Marks)
(i) Find the linear supply equation of the pasta dish. (3 Marks)
(ii) Find the equilibrium price and the quantity of the pasta dish. (3 Marks)
B
i) Explainwhy an indifference curve is convex to the origin (2 Marks)
ii)Consider an individual with an income of $10 facing the decision of how to allocate their
budget between beer and steak sandwiches. The price of a unit of beer is $1, and the price of a
steak sandwich is $3.
Number Total MU MUIP Number Total MU MUIP
of Utility beer beer of Utility steaks steaks
Beers beer Steaks steaks

15 24
24 2 45
32 3 63
4 39 4 75
5 45 5 84
47 6 87

Fillin the table and calculate the utility-maximizing quantities of beer and steak sandwiches that
the consumer should purchase, taking into Qaccount
4x6 4their
-/9Q limited
9 - income and the prices of the two
OXLS
goods. (8 Marks)
TOTAL: 20 MARKS
h-39-3s

6
 SECTION B
ANSWER ANY TWO QUESTIONS
QUESTION TWO
A. The table below shows the relationshin betWeen the price of a
Product A and the quauy
demand of Product A and B.
Price Of A
Quantity Demand of Quantity Demand of CONSUMER'S
A (Kg) B (Kg) INCOME (ZMK)
6.00
100 20 2000
6.50 90 1800
30
7.00 70 50 1600
7.50 40 70 1400
8.00 10 85 1200

to
i) Calculate the price elasticity of product A if the price of A increases from K7.00
K8.00 and indicate whether the good is inelastic or elastic (3 Marks)
decreases from K7.0
ii) Calculate the cross price elasticity of product B if the price of A
Marks)
to K6.50. Are goods A and B substitutes or complements(3
K1400 to K1800 .Calculate the Income
iil) If theincome of the conswner increases from complements
substitutes or
elasticity of product Aand Product B. Are goods A and B Chaur
( 6Marks)
elasticity of demand of a
iv) List and briefly explain any four factors that ffást t
product/service. (4 Marks)

producer of anned foods, is considering

B. Sunshine Canned Goods Company, a major consumers' earnings are expected to
raising its canned food prices because local food
the income elasticity of demand for
climb by 20%. According to recent economic data, a
possibility of adopting
Sunshine's canned foods is predicted to be -0.4. Analyze the reasoned justification
circumstances and provide a
price increase in the current economic
including calculations for your assessment. (4 Marks)
[TOTAL 20 MARKS]

QUESTION THREE P=1000-Q.

A) The consumer inverse demand for a 50 kg
bag offresh ground nuts is given by
P=200+4Q.
The inverse supply curve of groundnuts is groundnuts, (3 Marks)
in the market for
i)Calculate the equilibrium price and quantity associated with (i) (6 Marks)
ii)Calculate the consumer andproducer surplus
ii) Calculate the total surplus (1 Mark)
of K40 for each bag sold. Calculate the new
iv) Suppose Government decides to levy a tax
groundnuts (5 Marks)
equilibrium price and quantity in the market for
V)List any íive (5)Characteristics of a
Monopolistic competition (5 Marks)
Kmfemulas
4 queaien
TOTAL 20MARKS. too
4

Chsur
Table
mras
 QUESTION FOUR
i)
Explain the distinction between fixed
ii) Given a total costs and variable costs. (5 Marks)
cost function is given by:
TC = 10 + 6Q -
Use the total cost
0.90 + 0.050*.
(15 Marks)
function to fill in the following metrics at the various outputs listed in table:

AVC ATC

[TOTAL 20 MARKS.

SECTION C
ANSWER ONLY ONE (1) QUESTION
QUESTION FIVE
ABC Electronics produces high-end electronic devices,and it aims to
optimize
tailoring prices to different customer segments. The company has implemented revenue by
the following
pricing strategies:
Personalized Pricing
ABC Electronics offers personalized discounts to individual customers based on their
purchasing
history, loyalty, and willingness to pay. The discounts vary for each customer, ensuring that the
company captures the maximum value each customer is willing to pay.
Quantity Discounts
ABC Electronics provides quantity discounts for bulk purchases. The more units of a product a
customer buys, the lower the unit price. This encourages larger orders from businesses and
institutions while maintaining higher prices for smaller individual purchases.
Segmented Pricing
ABCElectronics introduces segmented pricing based on customer demographics.The company
offers student discounts, senior citizen discounts, and corporate discounts. Each segment is
charged a diferent price based on perceived differences in price sensitivity and purchasing
power.
REQUIRED
Explain
i) Identifythe type of price discrimination exhibited in the personalized pricing strategy,
your reasoning. (2marks) pricing structure.
i)Jdentify the type of price discrimination exhibited in the quantity discount
Explain your strategy. (2 marks) segmented pricing
exhibited in the
iii)Identify the type of price
discrimination
 structure. Explain your strategy. (2 marks)

i) Discuss any four (4)potential benefits of implementing price discrimination for ABC
Electronics. (4 Marks)
V) What are the conditions that must exist for any firm to practice Price
Discrimination? (
marks)
vi) Distinguish between a Monopoly and an Oligopoly (5 marks)
[TOTAL 20 MARKS]

QUESTION SIX
a) Suppose that the consumer's money income is K1000, price of commodity X is K100, andthe
price of commodity Y is K200.
i).Indicate the quantity of Xthe consumer could purchase if she spent all her income on
commodity X. (2 Marks)
i)Indicate the quantity of Y the consumer could purchase if she spent all her income on
commodity Y. (2 Marks)
b)Use the supply and demand curves to illustrate how each of the following events would affect
the price and quantity of cornflakes.
i). An increase in the price of jungle oats. (4 Marks)
ii). A decrease in the price of milk. (4 Marks)
iii) A severe drought affects the growth of corn which is used to manufacture cornflakes.
(5 Marks)
c) What would be the implication if indifference curves intersected each other? Explain with the
aid of a graph. (3 Marks)
[TOTAL 20 MARKS]

QUESTION SEVEN
Youare appointed as an economic analyst with the responsibility of advising a newly formed
country on the most suitable economic system. Select one of the following economic systems:
1market economy, command (centrally planned) economy, or mixed economy. In your detailed
recommendation, address the following aspects:
1. Definition and Features of the Chosen Economic System
2. Advantages of the Chosen Economic System
3. Disadvantages of the Chosen Economic System
[TOTAL 20 MARKS]