MAASAI MARA UNIVERSITY
REGULAR UNIVERSITY EXAMINATIONS
2022/2023 ACADEMIC YEAR
FIRST YEAR FIRST SEMESTER
SCHOOL OF BUSINESS AND ECONOMICS
BACHELOR OF SCIENCE-ECONOMICS,
COURSE CODE: ECO 1103
COURSE TITLE: INTRODUCTION TO
MICROECONOMICS
DATE: 7TH DECEMBER, 2022 TIME: 0830-1030
INSTRUCTIONS TO CANDIDATES
Answer Question ONE and any other TWO questions
This paper consists of four printed pages. Please turn over.
QUESTION ONE
a) Clearly distinguish the following pairs of economic concepts
i. Movement along and shift of demand curve (2 marks)
ii. Income and substitution effect of price change (2 marks)
b) Given cost functions of the form;
TC= 50+ Q+Q3;
VC = Q+Q3 Determine;
i. Fixed cost
ii. Marginal cost, when Q =2
(3 Marks)
c) Suppose the price of commodity X is sh. 20 and the price of Y is sh. 10 and suppose
the consumer income is sh. 10,000. Plot a budget line for the consumer
(3 marks)
d) Using the indifference curve approach, explain the consumer equilibrium and show
how the demand curve for a normal good is derived. (5 marks)
e) Draw a graphical presentation of short run equilibrium under the monopoly market
structure and show how the firm makes supernormal profits (4 marks)
QUESTION TWO
a) Discuss the usefulness of the concept of elasticity (6 marks)
b) If a 20% fall in price brings about 10% increment in quantity demanded,;
i. Calculate price elasticity of demand
ii. Interpret the nature of price elasticity in (i) above
(3 marks)
c) State the concept of equi-marginal utility.
(2 marks)
d) With the aid of a diagram, explain the concept of the firms least cost factor
combination (4 marks)
QUESTION THREE
Consider the production data below where labour is the variable factor of production.
Labour Total Physical Product
1 15
2 35
3 60
4 90
5 120
6 144
7 158
8 160
9 160
10 158
a) Find the average physical product and marginal product at each level of labour.
(6 marks)
b) Demarcate and explain the three stages of production (6 marks)
c) ‘Economics is a social science,’ Discuss. (3 marks)
QUESTION FOUR
a) Determine the equilibrium quantities of commodities x and z for a consumer whose
total utility (U) and other relevant variables are given below;
U = 20x − 4 z 2 + 40z − x 2
Income level Y = Ksh.48
Price of x( p x ) = ksh.2
Price of z ( p z ) = ksh.4
Show all your workings (8 marks)
a) b) Using a well labeled diagram describe the relationship between average total cost
(ATC), average variable cost (AVC) and marginal cost (MC) (7 marks)
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