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AMI810S- ADVANCED MICROECONOMICS- 1ST OPP- JUNE 2023 |
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n Am I BIA u n IVER s ITY
OF SCIEnCE Ano TECHn OLOGY
FACULTY OFCOMMERCE, HUMAN SCIENCE AND EDUCATION
DEPARTMENT OF ECONOMICS, ACCOUNTING AND FINANCE
QUALIFICATION: BACHELOR OF ECONOMICS HONOURS DEGREE
QUALIFICATION CODE: 08BECO
LEVEL: 8
COURSE CODE: AMl810S
COURSE NAME: ADVANCED MICROECONOMICS
SESSION: JUNE 2023
DURATION: 3 HOURS
PAPER: THEORY
MARKS: 100
EXAMINER(S)
FIRST OPPORTUNITY EXAMINATION QUESTION PAPER
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.
PERMISSIBLE MATERIALS
1. Scientific calculator
2. Pen and Pencil
3. Ruler
THIS QUESTION PAPER CONSISTS OF_ 4_ PAGES {Including this front page)
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QUESTION ONE
[25 MARKS]
= Consumers derived utility from consuming good x and goody. Utility function is U(X, Y)
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X4Y4,good y is a composite good with price (Py= N$1 ), the price of good x is (Px =N$5.00)
and consumer income is (I = N$100). Government would like to increase the consumption of
good x with 200 per cent. Government can achieve this objective by either giving cash subsidy
or a voucher that can only be used in the purchase of good x. Government can only spend
N$200.00.
a) Use a well labelled graph to represent the above information.
[5 marks]
b) Calculate optimal combination of good x and goody associated with each option. Which
option will you recommend and why?
[10 marks]
c) If government has only N$60.00 to spend to increase the consumption of good x to 24 from
the initial level, which option will you recommend?
[ 10 marks]
QUESTION TWO
[lOMARKS]
a) Construct two different economics models. Each model must at least have three
exogenous variables and one endogenous variable. Use your knowledge of economic
theories to state expected sign between exogenous variables and endogenous variables
in your models.
[4 marks]
b) Consider the market for beans that is initially in equilibrium with a market price of
N$140.00 per kg and a market quantity of 100 000kg. Beans are an inferior good. The
elasticity of demand for bean is perfectly inelastic and the elasticity of supply is relatively
elastic. Suppose that people's incomes rise, and the production cost of beans increases.
Draw graphs illustrating the initial equilibrium and the new equilibrium after the
described changes. Provide a verbal description of the outcome in this market due to
these changes.
[6 marks]
QUESTION THREE
[20 MARKS]
Let us analyse Namibia's beef market. The current total supply of beef is 1500kg per day at a
current market price is N$115.00 per kg. The beef market is characterised by a unitary
elasticity of demand and a 0.4 elasticity of supply. Currently, a new player is planning to enter
the beef market with a daily production of 150kg. Calculate the percentage change in market
price and percentage change in total supply of beef which is associated with the new player.
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QUESTION THREE
[25 MARKS]
Liina is deciding whether to give a loan to Johanna who is very poor and who has a bad credit
history. Simultaneous to Liina making this decision, Johanna must decide whether or not to
buy gifts for her boyfriend. If she buys gifts, she will be unable to repay the loan. If she does
not buy gifts, she will repay the loan. IfLiina refuses to give Johanna a loan, then Johanna will
have to go to a loan shark.
If Liina refuses to give a loan to Johanna and Johanna buys gifts then both Liina and Johanna
get 0. If Liina refuses to give a loan to Johanna and Johanna does not buy gifts then Liina gets
0 and Johanna gets -1. If Liina gives a loan to Johanna and Johanna buys gifts then Liina gets
-2 and Johanna gets 7. If Liina makes a loan to Johanna and does not buy gifts, then Liina gets
a payoff of 3 and Johanna gets a payoff of 5.
a) Identify players in this game
[4 marks]
b) What are their strategies?
[8 marks]
c) Construct the matrix with their payoff.
[8 marks]
d) Does the game have a dominant strategy and nash equilibrium?
[5 marks]
QUESTION FOUR
[20 MARKS]
A bicycle manufacturing company is considering how to allocate a N$30 million advertising
budget between two types of tournaments: Namibia premier league (NPL) football game and
Namibian newspaper game. The following table shows the new bicycle that are sold when a
given amount of money is spent on advertising during an NPLfootball game and a Namibian
newspaper game. Let P be the amount of money devoted to advertising on NPL football
games, Tthe amount of money spent on advertising on Namibian newspaper game, and
C(P,T)the number of new bicycle sold.
Total amount spent New sales from NPL New sales from
Total Sales
(Millions)
football game
Namibian
newspaper game
N$0.00
0
0
N$6.00
4
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N$12.00
11
21
N$18.00
16
27
N$24.00
26
31
N$30.00
31
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i) Write down the objective function for this problem?
(1 mark]
ii) Sate the constraint?.
(1 mark]
iii) Write a statement of the constrained optimization problem.
[2 marks]
iv) Calculate total sales associated with each spending on NPLfootball games and
Namibian newspaper game.
[6 marks]
v) Considering the information in the table, how should the manufacturer allocate its
advertising budget?
[4 marks]
b) The demand and supply functions for beef; P = 100 - 0.SQ and P = 90 + 0.SQ2
respectively. Using integral calculus, calculate consumer's and producer's surplus. 6 marks]
All the best