Midterm03 - Econ 51 Midterm Exam Tuesday February 8 2011 Instructions Please make sure to follow the instructions below Failure to follow them can

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Econ 51: Midterm Exam Tuesday, February 8, 2011 Instructions Please make sure to follow the instructions below. Failure to follow them can result in getting a score of zero, so please follow them very carefully. (1) This is a closed book, closed notes exam. (2) Please write your answers with a pen (black or blue), not a pencil. (3) You are allowed to use a simple hand-held calculator. Do NOT use any other device such as a laptop, a tablet computer, a smartphone etc (the list is not ex- haustive). (4) You have 110 minutes (9-10:50). (5) Please answer all three questions. Please use a separate blue book for each question. Please, never forget to write your name as well as the question you are answering, on each blue book. (6) Write your answers clearly. I retain the right not to grade answers that are illegible to me. Also, incorrect grading due to illegible answers is not a ground for regrading. (7) When I write log( x ), I mean the natural logarithm. (8) Good luck! 1
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1 Short Questions (28 points) (1) Let there be two states of the world s = 1 , 2, and let x and y be the consumptions in two states 1 and 2, respectively. Does the utility function u ( x,y ) = 6 + 5 x 2 + 7 y 2 +14 y +10 x represent a vNM preferences? Why or why not? If it does represent a vNM preferences, what are the implied probabilities of each state? (2) There are two states s = 1 , 2 with probabilities π and 1 - π . The agent’s vNM utility function is u ( x,y ) = π ( - x - 3 ) + (1 - π )( - y - 3 ), where x and y are consumptions in
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This note was uploaded on 03/19/2011 for the course ECON 51 taught by Professor Tendall,m during the Winter '07 term at Stanford.

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Midterm03 - Econ 51 Midterm Exam Tuesday February 8 2011 Instructions Please make sure to follow the instructions below Failure to follow them can

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