TOPIC: ECONOMICS/MANAGERIAL ECONOMICS

CLEAR FORMATTING

Ma) Examine the law of diminishing marginal returns in business decision making and its underlying assumptions {10 marks) {b} Explain how each of the following issues helps in preferring answers aimed at enabling the rm achieve its cardinal aim of prot maximization in the theory of production (i) Production functions of the rm (Smarts) [A ; (Kl-L, L. {ii} Laws of production (4n1arlts) l C5 CamSoanner (iii) Least cost factor combination {3 marks) /Q [a] Explain why a normal demand curve slopes downward from left to right. Are there exceptions? If yes explain {10 marks) (a) Given the following market demand functions for the commodityF \"X\" Qx=F (P... P3. P;, I. T, A) Where: 3;} P..= Price of commodity it IS P,e= Price of substitute commodity '1' Pz= Price of commodity \"Z\" which is a complement of \"X\". .5 3, I= level of capital income of consumers T= Tastes and preferences of consumers. A= Advertising expenditure by a firm producing "X" How will the consumer demand for commodity \"X\" change? i. If price of commodity.' "X\" rises. (2 marks) ii. If the substitute good \"'1'" rises. (2 marks) iii. If price of complementary commodity \"Z\" falls. [2 marks) iv. Per capita income (I) of the consumer rises. ('2 marks) v. The rm producing \"X\" increases its advertising expenditure. (2 marks) . ._