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spring2009_midterm2_makeup

# spring2009_midterm2_makeup - Second Midterm Exam Econ 150b...

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Second Midterm Exam Econ 150b. Intermediate Microeconomics April 9, 2009 Please write your name and discussion-section time on each blue book. 1. (50 points.) Consider an economy with two goods, labeled 1 and 2, two consumers, labeled A and B , and one firm. Write .! A 1 ; ! A 2 / and .! B 1 ; ! B 2 / for the endowments of consumers A and B , respectively. Let A 2 .0; 1/ designate A ’s share of the firm’s profit, so that B 0 s share is B D 1 A . Denote the consumers’ utility functions by u A .x A 1 ; x A 2 / and u B .x B 1 ; x B 2 / . Suppose that the firm produces good 2 as an output using good 1 as input according to the production function y 2 D f .y 1 / . (a) (5 points.) Define feasible allocation . (b) (10 points.) Define Pareto efficient allocation . (c) (10 point.) What is the budget constraint of consumer A assuming he takes prices .p 1 ; p 2 / and the firm’s profit as given? (d) (10 points.) What is a competitive equilibrium ? (e) (15 points.) Explain the logic behind the First Welfare Theorem: “The allocation of every competitive equilibrium is Pareto efficient.” (That is, provide the intuition for the proof. Be as precise as you can.)

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spring2009_midterm2_makeup - Second Midterm Exam Econ 150b...

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