Download Autumn Examinations 2007/2008

Autumn Examinations 2007/2008
MODULE:
EF210 Intermediate Microeconomics
COURSE:
EPL / BQF / BSSA
YEAR:
Two
EXAMINER:
Dr Ann Largey (700-5573)
EXTERNAL EXAMINERS: Professor T Boylan
Dr Dirk Nitzsche
TIME ALLOWED:
2 Hours
INSTRUCTIONS:
Answer THREE questions,
AT LEAST ONE FROM EACH SECTION
All questions carry equal marks.
Note that where a candidate answers more than the required number of
questions, the examiner will mark all questions attempted and then select
the highest scoring ones.
THE USE OF PROGRAMME OR TEXT STORING
CALCULATORS IS EXPRESSLY FORBIDDEN
PLEASE DO NOT TURN OVER THIS PAGE UNTIL YOU ARE INSTRUCTED
TO DO SO
EF210
Autumn 2008
Page 1 of 3
Section A
(Answer at least one question from this section.)
1. Given the production function and factor prices, show how a firm’s long run and short run
total, average and marginal cost curves are derived, using isocosts, isoquants and the firm’s
expansion path. Explain what is meant by the statement ‘the long-run average cost curve is
the lower envelope of short run average cost curves’.
2. Define the concepts of first, second and third degree price discrimination. When it is
impossible for a monopolist to differentiate between types of customers by sight, how is it
possible for the monopolist to practice price discrimination? Give examples of this in
practice.
3. In consumer theory, what is meant by the Equivalent Variation (EV) and Compensating
Variation (CV) of a price change? When will the values of EV and CV coincide with the
common measure of consumer surplus, the area under the demand curve?
Section B
(Answer at least one question from this section.)
4.
a.
With the production function y = f(x1,x2) = 5x10.5 x20.5 and input prices w1, w2
(40 marks)
(i) Determine the long-run cost minimising input demand functions.
(ii) What is the effect of an increase in the price of input 2 on demand for input 1?
b.
For the case in a., determine
(30 marks)
(i) the long-run total cost function
(ii) the long-run average cost function
(iii) the long-run marginal cost function
Comment on the answers to (ii) and (iii) in the light of the returns to scale of the
production function.
c.
With the same production function as in a., derive the short run total cost curve,
given the amount of input 1 is fixed at 36 units in the short run.
EF210
Autumn 2008
Page 2 of 3
(30 marks)
5.
a.
A consumer has utility given by U(x1, x2) = x10.2 x20.8, where x1 and x2 are the
(40 marks)
number of units of goods 1 and 2 respectively. Her income is M and prices of the
two goods are given as p1 and p2 respectively.
Determine the utility maximising demand functions for the two goods.
b.
A low-income consumer buys ‘fruit’ (F) and a composite good ‘expenditure on all
(15 marks)
other foods‘ (E).
Her utility function for the two goods is U(F, E) = F0.2 E0.8.
The price of fruit is initially €0.40 per unit and the consumer has a food budget of
€100 per week. Using your answer in part a., derive the quantity of fruit demanded
and the amount of expenditure on all other foods per week.
c.
For the individual described in part b., the government introduces a subsidy of
(35 marks)
€0.10 per unit on fruit.
(i)
What is the resultant change in the consumer’s utility?
(ii)
How much does the subsidy to this individual cost the government?
(iii)
Evaluate the equivalent variation of the subsidy.
(iv)
Illustrate your answers in (i) – (iii) using a diagram.
The market demand function in a duopolistic market is given by Qx = 1000 – px
6.
where Qx is the total output supplied on the market and px is price charged.
The cost function facing each producer is given by C(qj) = 50qj, where qj is the
amount produced by firm j, j=1,2. Derive the market equilibrium in each of the
following scenarios. Determine the output for each firm, the total output produced
and the price charged in the market. For each case use a diagram to illustrate.
EF210
(50 marks)
(i)
A Cournot scenario
(ii)
A Stackelberg scenario, with firm 1 as the leader in the market.
Autumn 2008
Page 3 of 3
(50 marks)