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AMI810SADVANCED MICROECONOMICS- 2ND OPP-JUNE 2023 |
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nAmI BI AunIVER s ITY
OF SCIEnCE Ano TECHnOLOGY
FACULTYOFCOMMERCE,HUMAN SCIENCEAND EDUCATION
DEPARTMENTOF ECONOMICS,ACCOUNTINGAND FINANCE
QUALIFICATIONBACHELOROF ECONOMICSHONOURS DEGREE
QUALIFICATIONCODE: 07BECO
LEVEL: 8
COURSECODE:AM1810S
COURSENAME: ADVANCED MICROECONOMICS
SESSION:JUNE 2023
DURATION: 3 HOURS
PAPER:THEORY
MARKS: 100
SECONDOPPORTUNITYEXAMINATION QUESTION
EXAMINER(S) MR. PINEHAS NANGULA
MODERATOR: Dr Ernest Ngeh Tingum {UNAM)
INSTRUCTIONS
1. Answer ALL the questions.
2. Write clearly and neatly.
3. Number the answers clearly.
PERMISSIBLEMATERIALS
1. Scientific calculator
2. Pen and Pencil
3. Ruler
THIS QUESTION PAPERCONSISTSOF _3_ PAGES{Including this front page)
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QUESTION ONE
[15 MARKS]
= Suppose the market for corn in Namibia has market demand of Q 500 - O.SP and market
supply of P = 200 + 6QP. Assume the market for corn in Namibia is a closed market. Use this
information to answer the following questions. Make sure you show all your work and do not
just provide your final answer.
a) Given the above information, what is the market price and market quantity? What is the
total farmer's revenue in this market?
[6 marks]
b) Suppose the government implements a price floor of N$900 per unit of corn in this market
where the government agrees to maintain this price floor by purchasing any excess supply
at the price floor price.
i) Given this price floor, how many units of corn will be purchased by consumers?
How many units of corn will be supplied by farmers in Namibia? How many units
of corn will be purchased by the government?
[6 marks]
ii)
iii)
a.
b.
Given this price floor what will be the direct cost to the government for
implementing this price floor?
[1 mark]
Suppose that the cost of storing each unit of corn is N$100 per unit for the
year.
Given this information and the described price floor, what will be the total cost
to the government of implementing this price floor?
[1 mark]
Given the price floor what is the total farmer's revenue from selling corn in this
market?
[1 mark]
QUESTION TWO
[25 MARKS]
= John has the utility functionU(Z, B) 10Z 0·4 Bo.6, where Z denotes the amount of food
consumed and B the amount of clothing. Now suppose that he has an income of N$1000 per
week and that the price of clothing is Pb = N$20 per unit. Suppose that the price of food is
initially Pz1 = N$40 per unit and that the price subsequently falls to Pz2 =N$20 per unit. Let us
assume food is on the x-axis and clothing is on the y-axis.
a) Calculate income effect because of a decrease in price of food and use a well labelled
graph to present your answer.
[10 marks]
b) Calculate substitution effect because of a decrease in price and use a well labelled graph
to present your answer.
[10 marks]
c) Combine the graph in a) and b) to show the total effect of the decrease in price of food.
[5 marks]
QUESTION THREE
[25 MARKS]
= = Suppose Cola and Pepsi's demand curves are given by Q1 + (64 2P2 ) - 4P1 and Q2
(64 + 2P2) - SP2, respectively. Coca-Cola's marginal cost is $5 per unit, and Pepsi's marginal
cost is $4 per unit.
a) What is Coca-Cola's profit-maximizing price when Pepsi's price is $8?
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[7 marks]
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b) What is the equation of Coca-Cola's price reaction function (i.e., Coca-Cola's profit-
maximizing price when Pepsi sets an arbitrary price P2)?
[8 marks]
c) What are Coca-Cola's and Pepsi's profit-maximizing prices and quantities at the Bertrand
equilibrium?
[10 marks]
QUESTION FOUR
[35 MARKS]
a) There are two goods (Good X and Good Y) to spend your income I. The utility function
= is U(X, Y) 10X 0·1 Y, good Y is a composite good, price of good Xis N$5.00 and
consumer's income is N$100. The price of good X decreases to N$2.50 while the price of
composite good and consumer's income remain the same.
Is good X a normal, inferior or giffen good?
[15 marks]
b) David is considering his purchases of food (x) and clothing (y). He has the utility function
U(x,y) = xy + 10x, his income is N$10.00, price of good xis N$1.00 and price of good
y is N$2.00.
c) Does David have an interior or a corner solution?
[10 marks]
d) An individual consumes two goods, clothing and food. Given the information below,
illustrate both the income-consumption curve and the Engel curve for clothing and food.
Price of food
N$10
N$10
N$10
N$10
Price of cloth
N$2
N$2
N$2
N$2
Quantity
food
6
8
11
15
of Quantity cloth Income
20
N$100
35
N$150
45
N$200
50
N$250
All the best
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