ARME 608 Final Exam Fall 1998 1) If the production function with one output and one input looks like the graph below, then plot the total cost curve and the corresponding average cost and marginal cost curves. y f(x) x 2) Graphically show both the long-run and short-run profit function as a function of output price and then as a function of an input price. 3) For the utility function, u = ln (x), compute Pratt’s risk coefficient and determine whether this utility function exhibits increasing or decreasing aversion to risk. 4) In the fall of 1998, milk prices in New York are very high and feed prices are low. Most people do not expect milk prices to remain this high beyond the spring of 1999. What would you suggest to dairy farmers for whom you have cost function information. 5) A technological change occurs which shifts the production function up at all input levels but decreases the marginal product at each input level. Will this technology be adopted by a farmer? (Assume constant prices.) 6)
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