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# Final420KSpring08answer - Final Exam Fall 08 Suggested...

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Final Exam Fall 08 Suggested Answers Q1 : 300 + 200 1 . 1 + 400 1 . 1 2 812 . 3. Q2 : Let t be the income allocated to asset A. Then he receives 1 . 6 t + 0 . 8(100 - t ) = 80 + 0 . 8 t if state 1 occurs and 0 . 7 t + 1 . 1(100 - t ) = 110 - 0 . 4 t if state 2 occurs. So he maximizes 1 3 ln(80 + 0 . 8 t ) + 2 3 ln(110 - 0 . 4 t ) The ﬁrst-order condition is 0 . 8 80 + 0 . 8 t + 2 · - 0 . 4 110 - 0 . 4 t = 0 , which yields t = 25. Hence he allocates 25 to A and 75 to B. Q3 : It gives students incentives to misreport their preferences, because if one fails to get a seat in his best school he may have to go to a school worse that his second best despite that he has higher priority than those who are admitted there, since once seats in a school are ﬁlled up she cannot challenge the admitted students. This typically causes that students pretend that their second best school is their ﬁrst-best. Q4 : Step 1: 1 ω 2 , 2 ω 4 , 3 ω 6 , 4 ω 6 , 5 ω 4 , 6 ω 2 . There is one cycle 2

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Final420KSpring08answer - Final Exam Fall 08 Suggested...

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