QUESTION ONE
(a) Explain the basic functions of managers. How is managerial economics useful to them? (9marks) (b) What are the functions of demand forecasting to business
managers? (c) A firm has the following demand and supply functions
(6marks)
Demand: Q-25-0.5P
Supply Q-10+1.0P (1) Find the equilibrium price
and quantity of the firm (3marks) (ii) Express the firm's supply curve if the government imposes a
specific sales tax of Ksh.3 per unit
(3marks)
(iii) Find the equilibrium price and quantity after the imposition of
the tax by the government
QUESTION TWO
(a) Explain cost-plus pricing strategy as used by firms and its limitations
(10marks) (b) Explain the main determinants of costs incurred by firms in the process of production (5marks)
QUESTION THREE (a) Differentiate between a perfect and monopoly markets in terms of the
demand curves facing them and their profit maximization conditions
(5marks) (b) A monopolistic firm has the following demand and cost functions
Demand function: P=100-2Q C-50+40Q
Cost function: C=50+40Q
Calculate the profit of the firm and prove that it is a maximum
(10marks)
(a) Explain the importance of production function to management of a
firm
(5marks)
(b) Using a relevant diagram explain the law of variable proportion and
its usefulness in management decision making
(10marks)
(4marks)