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econ50s08finalexam

# econ50s08finalexam - Economics 50 Stanford University...

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Economics 50 Stanford University Spring Quarter 2008 Page 2 of 17 Question 1: Some stretching exercises, to begin [10 points] a) Compute the (own-)price elasticity of demand for X, where X D =I/(P X +3P Y ). Show your work. [2 points] b) Compute the output elasticity of total costs, where TC=40+20w 1/2 r 1/2 Q. Show your work. [2 points] c) Compute the wage elasticity of labor demand, where L=P 2 /4w 2 . Show your work. [2 points] d) Compute the elasticity of substitution, for F(L,K)=L 1/4 + 4K 1/4 . Show your work. [4 points]
Economics 50 Stanford University Spring Quarter 2008 Page 3 of 17 Question 2: Will the skulls decompose? [20 points] Indiana’s preferences over whips (X) and hats (Y) are summarized by the utility function U(x,y) = x + 4 ln y. Indiana has an income of \$ I ; he can purchase whips and hats at the market prices P X and P Y , respectively. a) Derive expressions for Indiana’s utility-maximizing demands for whips and hats, X D (P X , P Y , I) and Y D (P X , P Y , I), for the case where his decision is an “interior solution” (i.e. to simplify, you can ignore the possibility of a corner solution). Be precise, and show your work. [6 points] b) How many whips and hats will Indiana purchase if I=\$60, P X =\$4, and P

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econ50s08finalexam - Economics 50 Stanford University...

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