f06-midterm2 - Economics 302 Intermediate Microeconomics...

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Economics 302 Silve Parviainen Intermediate Microeconomics Fall 2006 Midterm Examination II This is a 90-minute exam, with closed books and notes. No calculators allowed. There are four questions in the exam. Each question is worth 25 points. Remember to label your graphs carefully, and show your work. GOOD LUCK! 1 Technology and Proft Maximization Assume that a ±rm has a production function f ( l,k )= l 1 3 k 1 3 , and can buy all labor and capital from competitive markets at prices w and r . (a) Explain the concept of returns to scale. Does this production function exhibit increasing/decreasing/constant returns to scale? (b) Find the proft maximizing input demand functions, l = l ( P, w, r, q )and k = k ( P, w, r, q ). (c) Can you determine an optimal output level for this ±rm? Explain your answer briefly in words, or you can show it mathematically. (d) If over time, the production function changes to f ( l 1 2 k 1 2 , verify that this change represents technological progress. Is the technological progress labor saving, capital saving or neutral?
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This note was uploaded on 09/27/2008 for the course ECON 302 taught by Professor Toossi during the Fall '08 term at University of Illinois at Urbana–Champaign.

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f06-midterm2 - Economics 302 Intermediate Microeconomics...

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