ECON410MidtermPractice

# ECON410MidtermPractice - Multiple Choice(4 points each 1 1...

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Multiple Choice (4 points each) 1. Assume an individual has preferences of the form 1/4 1 2 1 2 , ) ln( ) ( U x x x x = + . Which of the following are his demand functions? A. 4/3 1/3 2 2 1 2 4 1 2 1 ; 4 4 ( ) ( ) p p I x x p p p = = - B. 4/3 1/3 1 1 2 4 1 1 2 2 ; 4 4 ( ) ( ) p p I x x p p p = = - C. 1/3 4/3 2 2 4 2 1 1 1 2 ; 4 4 ( ) ( ) p p I x x p p p = - = D. 1/3 4/3 1 4 1 2 1 1 2 2 4 4 ; ( ) ( ) p p I x x p p p = - =

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2. Assume a firm’s production technology is represented by the following isoquants. Which of the following statements is true?
3. Some athletes insure their bodies to protect against the possibility of getting injured and not being able to make a living. Consider an athlete who, if healthy, will earn \$100 million. If the athlete becomes injured, she will earn \$0. This athlete has a vNM utility function of 1/2 ( ) u x x = , where x is money in millions of dollars (for instance, the individual’s vNM utility for \$9 million is 3). What is the individual’s risk premium is she believes she will get hurt with 30% probability?

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