# ExamTHss07 - Econ 532 SS 2007 Deiter Exam(take-home part 64...

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Econ 532 SS 2007 Deiter Exam (take-home part, 64 pts) Name ________________________ Thought for the Day: A Those who do not believe in allowing prayer in school have obviously never taken an Econ test. @ Instructions: There are 8 questions, 8 pts each, with point values being distributed equally across question subparts. 1. Refer to our “intertemporal choice” model from Unit 3 for definitions of terms in this question. Assume Daunte has I 0 = \$10,000, I 1 = \$29,000, and r = 10%. a. What is the equation of Daunte’s budget constraint, assuming C 1 is the vertical axis variable and C 0 is the horizontal axis variable. b. How can Daunte increase C 0 by \$1,000, assuming neither I 0 nor I 1 can be changed? c. Draw a graph that shows Daunte being a borrower while maximizing his utility (assume bowed indifference curves as C 1 and C 0 are normal goods for Daunte). d. Explain or show with a graph how Darla can have 1) the same present value of combined incomes this year and next year as Daunte and 2) the same preferences

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borrower. 2. Assume two companies have each received separate estimates of their advertising impacts on sales as follows: Quaker Oats: S = 10 + 5A - 1.25A 2 S = \$ sales of Gatorade (millions) A = \$ of Gatorade advertising expenditures (millions) Coca Cola: S = 20 + 2.0 A 1/2 S = \$ sales of POWERade (millions) A = \$ of POWERade advertising expenditures (millions) a. What is the estimated marginal impact of advertising on sales of each firm’s product at A = 1 (i.e. \$1 million advertising)? b. How much should Quaker Oats spend on Gaterade advertising in order to maximize its dollar sales? c.
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ExamTHss07 - Econ 532 SS 2007 Deiter Exam(take-home part 64...

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