practice midterm 1

practice midterm 1 - University of British Columbia...

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Intermediate Microeconomics NYU, Spring 2012 Practice Midterm 1 Instructions: This is a closed book exam. The only notes you may refer to during the exam are the math handout. You should try to answer both problems. Each problem is worth 10 points in total. Good Luck! Problem 1: Larry goes to the supermarket to buy carrots and sour cream. The price of carrots is p c > 0 ($s per lb). The price of sour cream is p s > 0 ($s per pound). Larry has $ w > 0 to spend on carrots and sour cream. Larry’s preferences over carrots and sour cream on the consumption set R 2 + can be represented by the following utility function: u ( c,s ) = 1 2 log e ( c + 1) + 1 2 log e ( s + 1) , where c is the quantity of carrots (in lbs) and s is the quantity of sour cream (in lbs). This utility function is differentiable and preferences that can be represented by this utility function are monotone and convex. (a) Write down the equation describing Larry’s budget line. (1 point) (b) For an arbitrary consumption bundle (
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This note was uploaded on 04/07/2012 for the course ECONOMICS 10 taught by Professor Maximilianmihm during the Spring '12 term at NYU.

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practice midterm 1 - University of British Columbia...

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