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Muoki says, “I’d rather see an action movie than a comedy, and I’d rather see a comedy
than a foreign film. But given the choice, I think I’d rather see a foreign film than an action
movie. Which of these statements about individual preferences is violated?
A. Muoki’s preference ordering is complete
B. Muoki’s indifference curves are convex to the origin
C. Muoki’s indifference curves are negatively sloped
D. Muoki’s preferences are transitive
2. Peter likes one cup of tea with two teaspoons of sugar. He gets no extra utility for an
additional cup of tea if he doesn’t have two teaspoons of sugar and no extra utility for extra
sugar without a cup of tea. Paul has,
A. Linear and negatively sloped indifference curves
B. Linear and positively sloped indifference curves
C. L-shaped indifference curves
D. Vertical indifference curves
3. Diminishing marginal rate of substitution of ugali (X) for rice (Y), MRSXY means that the
rate of substitution of ___________.
Donald derives utility from only two goods, carrots (X) and donuts (Y). His utility function
is as follows: U(X, Y) = XY. Donald has an income (M) of $120 and the price of carrots
(PX) and donuts (PY) are both $1.
a) Find the marginal utility that Donald receives from carrots (MUX) and from
donuts(MUY) (4marks)
b) Determine the marginal rate of substitution of X for Y (MRSXY)(4 marks)
c) How does MRSXY change as the firm uses more X, holding utility constant.(3 marks)
d) What is Donald's budget line and relative price (PX/ PY )(4 marks)
e) What quantities of carrots and donuts will maximize Donald's utility? (5 marks)
Catalina Films produces video shorts using digital editing equipment (K) and editors (L).
The firm has the production function Q(K, L)=KxL, where Q is the hours of edited footage.
The wage is $25, and the rental rate of capital is $50. The firm wants to produce 3,000 units
of output at the lowest possible cost.
a) Find the marginal product of each input.(4 marks)
b) Determine whether the production function exhibits diminishing marginal product to
each input.(4 marks)
c) Find the marginal rate of technical substitution(MRTSLK) (4 marks)
d) How does MRTSLK change as more L, is used holding output constant.(3 marks)
e) Find the least costly combination of labor and capital to produce 3000 units (5 marks).
The marginal rate of technical substitution of labour and capital is defined as the rate at which the quantity of
1. The demand function for plantains is Qd =100 – 6P while the supply for plantains is
Qs = 28 + 3P where Qd is the quantity demanded, Qs is the quantity supplied and P is the price of plantains.
(a) Calculate the equilibrium price and quantity for plantains.
(b) Plot the data on a graph
(c) On the same graph increase the supply of plantains,.
(d) State what is the impact on equilibrium price and quantity?
1. Jose spends her income $40 on two goods. Good X and Good Y. The price of good X is $8 and price of good Y is $2.
(a) Draw the budget constraint to show how Jose can spend his money on the two goods.
(b) Calculate the slope of the budget line.
(c) If the price of good X increase by $2 what will happen to the budget line?
(d) If the price of good Y decreases by $1 what will happen to the budget line?
1. Complete the table below and draw the TP, MP and AP curves.
Units of labour Total Production (TP) Marginal Product (MP) Average Product (AP)
0 0
1 20
2 50
3 90
4 120
5 140
6 150
7 150
8 140
(a) Indicated from which unit of labour does diminishing marginal returns occur ________
(b) On a marginal product curve the following
(i) Maximum total product
(ii) Increasing total product
(iii) Decreasing total product
A firm is employing 100 workers at a wage rate(W) = $l5lhour and 50 units of capital at a
rental rate® = $30lhour. At the firm's current input use, the marginal product of labor is 45 and
the marginal product of capital is 60. Is the firm producing its current level of output at the
minimum cost
a) Yes because MPL/W > MPK/R.
b) Yes because W<R
c) No because MPL/W > MPK/R
d) No because MPL < MPK
Carlo plants cucumber in his backyard. 1 pack of seeds yields 3 kilos of cucumber, 2 packs 5 kilos of cucumber and 3 packs of seeds yielded 6 kilos. One pack of seeds costs P100. Graph the production function and total cost curve.
Compute the following to get the equilibrium price and quantity.
1) Qd= 30-5P
2) Qs= 0+5P
