• Document: Intermediate Microeconomics Midterm
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Econ 201 Beomsoo Kim Spring 2016 Name: __________________________ Student ID: __________________________ Intermediate Microeconomics Midterm Thursday April 21, 2016 There are 7 questions and 130 possible points. There are 2 pages to this exam. Please write all answers on the examination booklet. You will have 75 minutes to complete the exam. During the exam, you may use calculator and a dictionary. Use of hand-held electronic devices (such as cell phones, electronic dictionary, etc.) during the exam is strictly prohibited. For all questions, please show all your work to get full credit. Please make your diagrams clear and label the relevant parts of the graph. Once you’ve completed the exam, please sign the pledge on page 2 1. (20 points) Compute the MRS for the following utility functions: ( a and b are strictly positive constants). a. U(X,Y) = aln(X)+bln(Y), b. U(X,Y)=XaYb, c. U(X,Y)=aX+bY, d. U(X, Y)=(Xρ+ Yρ)1/ ρ 2. (10 points) John is indifferent between canned soup and fresh soup. Canned soup sells for $1 per serving and fresh soup sells for $2 per serving. Assuming that John has allocated $4 toward soup, how will he spend it? Explain your answer by drawing John's budget line and indifference curves. 3. (20 points) ) A consumer has $100 of income to spend on books and other goods (a composite good). Books cost $20 each and the consumer’s optimal bundle is to consume purchase three books while spending the rest of the income on the composite good. The consumer is then given a gift of a book. Assume the consumer is unable to sell the book. Use two separate graphs to demonstrate each of the two possible scenarios: i. A consumer that is indifferent between the book gift and a cash gift of $20. ii. A consumer that strictly prefers a $20 cash gift to a book. To get full credit, accompany each graph with a brief explanation and draw your graphs clearly and well labeled. Econ 201 Beomsoo Kim Spring 2016 4. (15 points) For what values of a and b will the following production function exhibit increasing, decreasing or constant returns to scale? 1/b q = (La + Ka) 5. (10 points) Suppose that products can be produced according to the production function Q=5KL, where MPl=5K and MPk=5L, and assume the input prices are Pl=$1 and Pk=2. If the firm wishes produce 20 units of output, what cost minimizing combination of K and L should the firm utilize? (HINT: There are 2 unknowns (K and L), so you need 2 equations to answer the question.) 6. (10 points) The ABX Corporation determines that at current prices the demand for its computer chips has a price elasticity of 1.5 in the short run, while the price elasticity for its disk drive is 0.8. a. If the corporation decides to raise the price of both products by 20%, what will happen to its sales? b. What will happen to its sales revenue? 7. (45 points) Ed's utility from vacations (V) and meals (M) is given by the function 2 U(V,M) = V M. Last year, the price of vacations was $200 and the price of meals was $50. This year, the price of meals rose to $75, the price of vacations remained the same. Both years, Ed had an income of $1500. a. (5 points) Set up a Lagrangian to solve utility maximization problem with initial price and find equilibrium. b. (5 points) When price of meals increased repeat the a and find equilibrium. c. (5 points ) Show both equilibrium in the graph. Place vacation on the vertical axis and meals on the horizontal axis. d. (5 points) show the compensating variation for price change in meals in the graph. e. (13 points) Calculate compensating variation as numeric number for the price change in meals. (Hint: Use expenditure function) f. (12 points) Calculate the equivalent variation as numeric number for the price change in meals. Honor Pledge: I pledge on my honor that I have not given or received any unauthorized assistance on this examination. Signature: _________________________ Econ 201Beomsoo Kim Spring 2015 Name: __________________________ Student ID: __________________________ Intermediate Microeconomics Midterm Monday April 20, 2015 There are 7 questions and 130 possible points. There are 2 pages to this exam. Please write all answers on the examination booklet. You will have 75 minutes to complete the exam. During the exam, you may use a simple calculator(No Scientific or Graphic Calculators) and a dictionary. Use of hand-held electronic devices (such as cell phones, electronic dictionary, etc.) duri

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