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Unformatted text preview: Economics 302 Silve Parviainen Intermediate Microeconomics Fall 2006 Mock Final 1 Consumer Optimization Assume that a consumer’s preferences can be described as u = ( x 1- 1) x 2 , and the prices for goods 1 and 2 are p 1 and p 2 , and the consumer’s income is I . (a) Find the optimal demand functions for goods 1 and 2. (b) Assuming that p 1 = P 2 = 1 and I = 9, determine the optimal consumption point, and the utility level reached at that point. (c) If p 1 = 3 what should p 2 be in order for the consumer to stay at the original level of utility calculated in part (b)? 2 Cost Minimization Suppose that a firm’s production function has the Cobb-Douglas form q = l α k β , where α, β > 0, and that the firm can hire all labor ( l ) and capital ( k ) it needs from competitive input markets at rental rates w and r , respectively. (a) Show that cost minimization requires wl α = rk β ....
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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.
- Fall '08