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The University of the West Indies

SEMESTER I

SEMESTER II

Examinations of December

SUPPLEMENTAL/SUMMER SCHOOL

/ April/May

/ July

2012

______________________________________________________________________________________________________________
Originating Campus:
Mode:

Cave Hill

Mona

On Campus

By Distance

St. Augustine

Course Code and Title:ECON2000 - Intermediate Microeconomics


Date: December 19th , 2012

Time: 4:00 p.m.

Duration: 2 hours

Paper No: Final

Materials required
Answer booklet:
Calculator:

Normal

Special

Programmable

Non Programmable

Instructions to Candidates:

Not required

This paper has 3 pages and 4 questions.

Answer all questions

______________________________________________________________________________
The University of the West Indies

Course Code

20....../ ....../...

DO NOT WRITE OR TYPE ON THE BACK OF THIS SHEET: USE ONE SIDE ONLY.
INSTRUCTIONS: Each page must be signed by the First and Second Examiners, and where applicable the University and External
Examiners. Completed forms should be handed to the Senior/ Assistant Registrar (Examinations). Where applicable, the EXTERNAL
EXAMINER is required to sign the question paper and return it with comments, if any, (on a separate sheet), to the Senior/Assistant
Registrar (Examinations).

First Examiner

University Examiner (where applicable)

Second Examiner

External Examiner (where applicable)

Date: 20...../..../...

Date: 20...../ ...../...

1. You are given the following table for a production process which has two variable inputs.
The numbers in the table represent the maximum output it is possible to produce with
each combination of inputs:
Labour Input
Capital
1
2
3
4
5
Investment
1
35
60
70
85
95
2
60
70
85
95
105
3
70
85
95
105
115
4
85
95
105
115
125
5
95
105
115
125
135
(a) Draw the isoquants corresponding to the following output levels: 60, 70, 85, 95, 105 and
115. (14 marks)
(b) What returns to scale does the production function exhibit? (2 marks)
(c) What can be said about the MRTS? (1 mark)
(d) Analyze the marginal productivity of labour and capital for the production function. (3
marks)
2. Duane breeds parrots for a living. He has discovered that the production function for
parrot chicks (Q) is:
Q = K0.5L0.5
where K is capital and L is labour. The marginal products of capital and labour are as
follows:
MPK = 0.5K-0.5L0.5
MPL = 0.5K0.5L-0.5
The price of K is $8 and the price of L is $2.
(a) What is the average product of capital? (2 marks)
(b) Does capital obey the law of diminishing returns? Explain. (2 marks)
(c) Suppose that Duane wants 144 parrot chicks, how much K and L should be employed
to minimize costs? (5 marks)
(d) What is the cost of producing 144 parrot chicks? (2 marks)
(e) Suppose that Duane is faced with the same problem as in (c) except that he has a
fixed amount of K. In fact K = 16. How much L should be employed to minimize
costs and what is total cost? (7 marks)
3. Bud Owen operates Buds Package Store in a small college town. Bud sells six packs for
off-premises consumption. Bud has very limited store space and has decided to limit his
product line to one brand of beer, choosing to forego the snack food lines that normally
accompany his business. Bud operates in a highly competitive market with a considerably
large number of firms. In fact, he has no control over the current $2.50 per six pack
selling price. Buds total cost function is:
TC = 2000 + 0.0005Q2
where Q refers to six packs per week. Included in the fixed cost figure is a $750 per week
salary for Bud, which he considers to be his opportunity cost.
(a) Find Buds marginal cost function. (2 marks)
(b) Calculate Buds profit maximizing output level. (3 marks)
(c) What is his profit (4 marks)
(d) Is this an economic or an accounting profit? Explain. (4 marks)
(e) The town council has voted to impose a tax of $0.50 per six pack sold in the town,
hoping to discourage beer consumption. Calculate Buds profit maximizing output
level after the tax. What is Buds profit after the tax? (7 marks)
______________________________________________________________________________
The University of the West Indies

Course Code

20....../ ....../...

DO NOT WRITE OR TYPE ON THE BACK OF THIS SHEET: USE ONE SIDE ONLY.
INSTRUCTIONS: Each page must be signed by the First and Second Examiners, and where applicable the University and External
Examiners. Completed forms should be handed to the Senior/ Assistant Registrar (Examinations). Where applicable, the EXTERNAL
EXAMINER is required to sign the question paper and return it with comments, if any, (on a separate sheet), to the Senior/Assistant
Registrar (Examinations).

First Examiner

University Examiner (where applicable)

Second Examiner

External Examiner (where applicable)

Date: 20...../..../...

Date: 20...../ ...../...

4. Two large diversified consumer products firms are about to enter the market for a new
pain reliever. The two firms are very similar in terms of their costs, strategic approach,
and market outlook. Moreover, the firms have very similar individual demand curves so
that each firm expects to sell one-half of the total market output at any given price. The
market demand curve for the pain reliever is given as:
Q = 2600 400P
Both firms have marginal and average costs of $2.00 per bottle. Patent protection ensures
that the two firms will operate as a duopoly for the foreseeable future. Price and
quantities are per bottle. If the firms act as Cournot duopolists, solve for the individual
firms equilibrium output and profit and the market output and price. (20 marks)

______________________________________________________________________________
The University of the West Indies

Course Code

20....../ ....../...

DO NOT WRITE OR TYPE ON THE BACK OF THIS SHEET: USE ONE SIDE ONLY.
INSTRUCTIONS: Each page must be signed by the First and Second Examiners, and where applicable the University and External
Examiners. Completed forms should be handed to the Senior/ Assistant Registrar (Examinations). Where applicable, the EXTERNAL
EXAMINER is required to sign the question paper and return it with comments, if any, (on a separate sheet), to the Senior/Assistant
Registrar (Examinations).

First Examiner

University Examiner (where applicable)

Second Examiner

External Examiner (where applicable)

Date: 20...../..../...

Date: 20...../ ...../...