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Midterm-2007

# Midterm-2007 - Econ 6202 Fall 2007 Dmitry Shapiro Midterm...

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Econ 6202, Fall 2007 Dmitry Shapiro Midterm Exam October 15, 2007 There are 3 questions in the midterm. You need to do all three of them. The exam is 75 minutes long and has 75 points. Be sure to allocate your time in proportion to the points. The exam is closed-book. Please turn off your cellphones and other sound-making devices. Good luck! 1. [25 points] Let u ( x 1 , x 2 ) = ln( x 1 ) + 2 ln( x 2 ). (a) [10 points] Find the Marshallian demand. (b) [15 points] Assume that prices are p 1 = p 2 = 1. Is the person with such utility function a risk-loving, risk-neutral or risk-averse when offered gambles over income? 2. [25 points] The firm has a linear production function y = n i =1 a i x i and the input prices are w 1 , . . . , w n . (a) [15 points] Find the combination of inputs that minimize the firm’s cost of producing a particular amount of output y if input prices are such that there are no two goods i and j with w i /w j = a i /a j . (b) [10 points] Find the cost function and conditional input demand functions for all values of input prices. 3. [25 points] Suppose that Audrey Tautou is considering purchasing flood insurance for her house. If Audrey does not buy flood insurance, her wealth will be w

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Midterm-2007 - Econ 6202 Fall 2007 Dmitry Shapiro Midterm...

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