THE UNIVERSITY OF THE WEST INDIES

OPEN CAMPUS

SEMESTER I □ SEMESTER II □ SUPPLEMENTAL/SUMMER SCHOOL □

Examinations of December □ / April/May □ / July □ 2016/2017

Course Code and Title:

Date: Time:

Duration __________Hrs. Paper No:

Materials required:
Answer booklet: Normal □ Special □ Not Required □
Calculator: Programmable □ Non Programmable □
(where applicable)
Multiple Choice Answer Sheets: Numerical □ Alphabetical □ Included □

Auxiliary/Other material(s) – Please specify:

……………………………………………………………………………………………………………
…………………………………………………………………………………………………………....

Candidates are permitted to bring the following items to their desks:

…………………………………………………………………………………………………………....

INSTRUCTIONS TO CANDIDATES: This paper has __ pages and ___ questions.

YOU ARE REQUIRED TO ANSWER QUESTIONS

©The University of the West Indies Course Code ./……./….. /2016

____________________________________________________________________________________

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. Completed forms should be handed to the
Senior Assistant Registrar (Assessment, Awards & Records).

Please indicate below the version of the question paper:

□ Main Paper □ Alternate 1 □ Alternate 2

..................................... ............................................
First Examiner Second Examiner

Date:…./....../ 2016 Date:…../…../.2016

 Page 2

Question 1

If the income elasticity of tomatoes is estimated to approximate +0.25, what would you expect to
happen to the consumption of tomatoes as personal income rises?

What are the key points in a short-run production function that delineate the three stages of
production?

Explain the relationship between the law of diminishing returns and the three stages of production.

What are the main characteristics of a perfectly competitive market that cause buyers and sellers to be
price takers? Explain

Question 2

The owner of Maxie’s, a well-known fast food operator seeks your expert advice. He given you the
following information: when he charged a price of $190 for a box lunch there were about 120
customers per month and when he decreases the price by a dollar five more customers purchased
lunch. He wants to know the following (based on operating cost of $60 per box lunch):

a) What is the coefficient of the demand curve?

a) What price would maximize revenue?
c) What is the price elasticity at the profit maximizing price?

Question 3

Kool (producer of hi–tech fans) production function is Q = KL0.5. The company over the years
uses input rates of 80 and 20 for capital and labour respectively. The price of capital is $100 and
labour is $25 per fan.

a) Is there efficiency in production? Why?

b) If $25,000 is allocated to production, what is the maximum output?

Question 4

The cost function of a manufacturing firm that is producing television sets is

estimated as: TC = 250 + 150Q – 2.5Q2 + 0.5Q3

(i) Derive the MC and AC functions

(ii) What are the total costs and average cost at an output of 123 units?
(iii) What is the value when AC is at a minimum?
(iv) What is the value when MC is at a minimum?

©The University of the West Indies Course Code ./……./……../2016

____________________________________________________________________________________

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. Completed
forms should be handed to the Senior Assistant Registrar (Assessment, Awards & Records).

..................................... ............................................
First Examiner Second Examiner

Date: ./....../...../2016 Date: ./…../….../2016

 Page 3

Question 5

A monopolist faces the price equation P = 1,000 – 0.5Q, and cost is given as:

TC = 400 + 100Q +2.5Q2

a) Determine the profit at the revenue maximizing level

b) Determine the profit maximizing level.
c) Compare the answers above and comment on the appropriate goal of the firm.

Question 6

a) Explain the concept of deadweight loss with the aid of a diagram.

b) A monopolist has the following demand and TC functions:

Q = 2,500 – 25P
TC = 100,000 + 20Q + 0.05Q2
How much consumer surplus ($) will a monopolist transfer to itself?

©The University of the West Indies Course Code ./……./……../2016

____________________________________________________________________________________

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. Completed
forms should be handed to the Senior Assistant Registrar (Assessment, Awards & Records).

..................................... ............................................
First Examiner Second Examiner

Date: ./....../...../2016 Date: ./…../….../2016