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Unformatted text preview: Eco11, Fall 2008 Simon Board Economics 11: Homework 3 November 13, 2008 Due date: Tuesday 25th November. Instructions: You are required to write up your solution separately and independently, al- though you are encouraged to discuss and work in groups. Please write your name, student ID number, and the name of your TA on the front page of the assignment that you hand in. Also, please put boxes around your final answer to each part. 1. Consumer Surplus with CES utility An agent has utility u ( x 1 ,x 2 ) = x 1 / 2 1 + x 1 / 2 2 , income m = 4 and faces prices p 1 = 2 and p 2 = 2. Suppose the price of good 1 rises to p 1 = 3. Calculate the increase in the agent’s income required to compensate her for this price rise. 2. Cost Minimisation with Quasilinear Production A firm has production function f ( z 1 ,z 2 ) = 2 z 1 / 2 1 + z 2 The firm’s inputs cost r 1 and r 2 . (a) Does this production function exhibit decreasing, constant or increasing returns to scale?...
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- Fall '08
- Economics, shut down, inputs cost r1