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Unformatted text preview: WELLESLEY COLLEGE DEPARTMENT OF ECONOMICS ECONOMICS 201-03 JOHNSON Answers to Hour Examination #1 I. Multiple Choice (2 points each - 30 points possible) [YES - indeed I left OUT #6 on the multiple choice. I'm still learning to count to 15! Thus, everyone received credit for that missed question.] 1. D 9. C 2. B 10. A 3. C 11. A 4. C 12. C 5. C 13. B 6. 14. C *** 7. A 15. D 8. A II. Questions & Problems (40 minutes total - 60 total possible points) A. Look Homeward, Engel ( 25 minutes - 38 points) a. Strictly monotonic and strictly convex. Why? Well, both MU's are positive (even though one ofthem is a constant) so strict monotonicity....also, the MRS (which is l/X 2 ) diminishes, so strictly convex preferences. Means preferred to extremes. b. See optimal demands below. Basically, set up either the Lagrangian or the combination ofthe MRS equal to the price ratio plus the budget constraint. Either way is fine, although be clear which method you're using. You SHOULD, however, be able to set up the Lagrangian if forced! By the way, each first order condition ofthe Lagrangian should be set equal to ZERO to force a maximum in this case. A few of you had fine F.O.C.'s, but neglected to set them to zero. You did, however, use that condition to find your optimal demands....
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This note was uploaded on 06/15/2010 for the course ECON 201 taught by Professor Johnson during the Fall '08 term at Wellesley College.

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