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Unformatted text preview: Economics 302 Silve Parviainen Intermediate Microeconomics Fall 2006 Mock Final 1 Consumer Optimization Assume that a consumers 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 consumers 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 firms production function has the Cobb-Douglas form q = l k , where , > 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 = rk ....
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- Fall '08