380 Quiz 1 Answers

380 Quiz 1 Answers - -= 2. What is an indirect or value...

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Quiz 1 Economics 380 Name____________________ 1. Economists formalize problems as maximizing or minimizing? For a general objective function 1 2 ( , , ) y f x x z = where 1 x and 2 x are choice variables (endogenous variables) and z is an exogenous variable, what are the first order conditions (calculus) for maximization of y . 1 2 1 1 2 2 ( , , ) 0 ( , , ) 0 f x x z x f x x z x = = Example: 2 2 1 1 2 2 1 2 1 1 1 2 2 2 100 .1 200 1 ( , , ) 100 .2 0 ( , , ) 200 2 0 y zx x x x f x x z z x x f x x z x x = - + - = - = =
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Unformatted text preview: -= 2. What is an indirect or value function? (you can use the notation in 1. to explain if you wish) If x 1 * and x 2 * satisfy the first order conditions, the indirect or value function is * * 1 2 ( , , ). f x x z Example. In the example * 1 500 , x z = and * 2 100. x = The indirect or value function is 2 2 100 (500 ) .1(500 ) 200(100) 1(100) y z z z =-+-...
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This note was uploaded on 04/07/2011 for the course ECON 380 taught by Professor Showalter,m during the Winter '08 term at BYU.

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