e2_301_f99_Exam - Economics 301 Fall 1999 SECOND HOUR EXAM...

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Economics 301 SECOND HOUR EXAM J. Wissink Fall, 1999 November 9 th Cornell University Directions : Answer all questions. Write legibly, concisely and coherently. Be sure to label all axes, functions and variables used. READ QUESTIONS CAREFULLY. Draw pictures whenever possible. Total time for the test is 75 minutes. Total point score for the exam is 100 points. Point scores for individual questions appear below. Part I . Short questions: Answer all three; 10 points each 1. Illustrate how all four points on the isoquant/isocost diagram at the right would be represented on a diagram representing average total cost functions - both long-run and short-run. Assume L and K are the only two inputs in the production function. 2. Backpacks are produced with a technology described by the isoquant diagram on the right. Assume that the price of labor is $2/unit and the price of kapital is $50/unit. Determine the total cost function for producing widgets efficiently. Note: K=kapital, L=labor and these are the only two inputs used in the production of backpacks. 3. Joe is an expected utility maximizer with the utility function where $m is money. He currently has $2500 but he knows that if he has a lucky day tomorrow he will find $1,100. If he has an unlucky day he will lose $900. Joe assumes that he will be unlucky with probability .25 and lucky
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