Lyon Econ 7140 January 31, 2008 1. Using the profit maximization problem for a price-taker firm, where there are n inputs, show (prove) that a. M y * w 1 )))) = ! x * 1 p b. Can y * w 1 = x * 1 p ))) $ 0 ? Prove yea or nay (yes or no). Explain. c. An input with the characteristics stated in part b is called an _______ input. Can all inputs have this characteristic? Explain. 2. “Open speculative markets are defended on the premise that it is better to be aware of impending events than to be unaware of them. But for events like impending crop disasters, earlier news merely shifts forward and thereby spreads the effects over a longer interval to no one’s benefit. People might prefer to experience a short, intense period of less coffee in the future rather than have an earlier, longer lasting though less intense reduction in consumption.” What does economic theory say about this? 3.
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