8 5:38 Assignment - M... Q . . . MOI UNIVERSITY ECO 210: INTERMEDIATE MICROECOMICS 1 : ASSIGNMENT INSRUCTIONS: ANSWER ALL QUESTIONS a) Clearly identify any three main variables that affect the revenue and cost of the firm operating under perfect competitive environment (3 Marks) Explain the following terms in Cobb-Douglas production function i. Capital Elasticity ii. Labour Elasticity (4 Marks) b) Given that Qo=10K.7L02 and assume that K, L are increased by 50% compute returns to scale and interpret your observation (4 marks) c) A consumer has the following utility function; U=X04Y06 where X and Y are two goods. If Px=2 and Py=3 and the consumer the income has constraint of 45 1. Formulate the utility maximization problem for the consumer (2 marks) ii. Find the quantities of X and Y which will maximize utility (4 marks) iii. If the budget constraint is relaxed/increased by 15 units, by how much is the utility increased (3 marks) d) A monopolist's demand function is given as O = 2000-10, where O is the quantity is produced and sold and P is the price per unit in Ksh. If the firm's marginal cost is K.sh100: 1. Calculate the monopolist's equilibrium quantity and price. (5 marks) ii. Suppose the monopolist behaves competitively, how would the answers in (i) above change? (5 marks) O 0