QUESTION ONE

a) How does cost theory help us

understand the shape of the supply curve?
[10 marks]
b) In what ways do non-monetary benefits influence the individual supply of labour
[10 marks]
c) Can a company achieve both revenue and
profit maximization simultaneously?
If so how?
[5 marks]
TOTAL
[25 Marks]
QUESTION TWO
The law of demand is a fundamental concept of market
economies. Rational consumers
will aways buy more of a good they want when the price falls, and less when the price
rises. The opposite holds for the law of supply wherein more is supplied as the price goes
up and vice versa. Consequently, a market is in equilibrium when the price and quantity
are at a level at which supply equals demand. The quantity that consumers demand is
exactly equal to the quantity that producers supply. Total welfare in society is maximized.
The demand and supply of Jackets in Maphisa are as follows: The prices are estimated
to be S0, $3, $5, S7, and $9.The linear equations for the demand and supply of Jackets
in Maphisa are given as follows:
Qs = 100 + 10P and QD = 300 -30P

i. Plot a demand and supply curve, clearly showing the equilibriun quantity.
[8 marks]
ii. Usingthe two functions, solve for the equilibrium price and quantity.
(2)
[2 marks]
b) Suppose government comes in with a$1 tax show the impact of the tax using relevant
(6)
calculations, comments and diagram/s. [10 marks]

reduce the amount of

c) Research has found that an increase in the price of beer would
between these two
marijuana consumed. State and explain the relationship that exists
[5 marks]
products.
Page 2 of 5
 TOTAL
[25 Marks]
QUESTION THREE
Study the following table for Hotdogs and
follow
Burgers and answer the questions that

Units
Marginal Utility Marginal Utility
of Hotdogs Of Burgers
1
39 30
2
30 20
3
24 14
4 18 10
5 15 6
The price of Hotdogs is $3 and the price of Burgers is $2: the student has
an income
of $10.

a) Using the data above calculate the optimum level of

consumption that satisfies
the budget constraint. Show all your calculations.
[10 marks]
b) The most intriguing and beguiling theories to scrutinise in economic literature are
those that detail and argue the behaviour of consumers. They culminate to the
same thing albeit from different perspectives. (Anthroe ,2020). Elaborate on
these theories, clearly showing the major areas of debate and convergence.
[15 marks]
TOTAL
[25 Marks]
QUESTION FOUR
a) Differentiate between returns to scale and Diminishing returns with the aid of
practical examples. [10 marks]

b) With an aid of diagrams, explain how entry of new firms eliminate profit in the
long run in a

i.Perfect competition

Page 3 of 5
 Monopolistic Competton (15 marks]
TOTAL
(25 Marks]
QUESTION FIVE
Reankalis Pr Ltd, a factory that manufactures bicycie wheels can produce between 0
and 200 Wheels per day, depending on how many workers it hires The factory already
Cwns three wheel building robots (which must be operated by workers) and must pay a
wage rate of S10 per day to the workers it hires Rentals and rates of the firm are pegged
at S1000 Assume that the number of macthines the factory owns and the size of the
factory are fired. Only the nunber of workers is variable. Study the table and answer the
questions that foilow.
oUnits of labour Total Product

6 100
10 200
13 300

17 400

23 500
600
32
700
44
800
62

(10 marks]
total cost schedules and unit cost schedules.
a) Compile the relationship among
cost curves for Reankalis Pt Ltd. Deduce the
y b) Sketch the 7 marks]
these COst cuves.
market fims
Professor R.S. Pindyck, in a perfectly competitive
According to continue to
are some firms who will
C)
however, they
experience identical costs: assertion.
when making economic losses. Evaluate this
operate for longer periods
[B marks]

[25 Marks]
TOTAL Page 4 of 5
 2:

QUESTION SIX
a) Consider the information on the table below
Machinery 0 2 4 6 8
goods (Y)
units)
Non - 50 45 35 20
Machinery
goods (X) 2,
(units)

() Graph the Production possibility curve (PPF)for the above table.[4 marks]
(i) What is the opportunity cost of producing 2 units of machinery goods when
there are 50 non machinery goods? [1 mark]
(ii) Inessence what is the opportunity cost of one additional unit of machinery
goods when there are 50 units of non -machinery goods? [1 mark]

(iv) What is the opportunity cost of producing 2 additional units of machinery

when there are 45 non machinery goods? [1 mark]

(v) What is the opportunity cost of producing 2 additional units of machinery

when there are 20 non machinery goods? [1 mark]

(vi) Does the law of increasing opportunity cost hold? Explain your answer.
[1 mark]
(vii) Can this economy produce 60 non machinery goods and 40 machinery
goods? [1 mark]

(viii) Using a diagram show how the PPC shows choice, opportunity cost and
scarcity. [5 marks]
b) Derive the Dernand Curve using the Indifference Curve Analysis [10 marks]

TOTAL [25 Marks]

END OF EXAMINATION!!!

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