EC 501: Problem Set 9
(Due in class on Tuesday, November 4)
Liz Baylor has a $100,000 ring and keeps $100,000 cash in a checking account that pays no
interest. If the ring is stolen, Liz will be forced to replace it at a cost of $100,000. The chance of
EC 501: Problem Set 2, Solutions
1. Suppose Jacks utility function is UJ (LJ , FJ ), where LJ is the amount of
lean and FJ is the amount of fat he consumes. Since he never
actually eats any fat, his utility function must be
UJ (LJ , FJ ) = LJ ,
or any pos
EC 501: Problem Set 3, Solutions
1. (a) To nd the compensated demand functions, we need to solve the
E = pa A + pb B
A 2 B 2 = U.
The Lagrangian for this problem is
L = pa A + pb B + U A 2 B 2 .
The rst order conditio
EC 501: Problem Set 5
(Due in class on Tuesday, October 7)
1. Farmer Joe is an apple grower, whose only source of income is his apple crop of A0, which
he can sell at the going price of pa. His utility function depends on the quantities of the only
EC 501: Problem Set 3
(Due in class on Tuesday, September 23)
Adam's utility function is U = A1/2 B1/2 where A, B represent the number of apples and
bananas respectively that he consumes.
(a) Find Adams compensated demand functions.
(b) Write down Adam
EC 501: Final Exam (Fall 2015),
1. (a) Since the utility function is Leontief, we can write down the demand
2px + 3py
2px + 3py
(b) Substituting the given data into the demand functions we get:
x0 = 14
y0 = 21.
EC 501: Problem Set 1
(Due in class on Thursday, September 10)
(a) Find the relationship between the Centigrade (C) and Fahrenheit (F) temperature scales,
given that (i) the relationship is linear, (ii) water freezes at C = 0 or F = 32, and (iii) water
EC507 A1: Statistics for Economists
Problem Set 1
Due Friday, September 18
Late problem sets will not be accepted no exceptions. You may work together on the problem set, but
every student has to hand in his/her own answers. All questions count
EC 501: Problem Set 8
(Due in class on Thursday, October 30)
In the economy of Ricardia, two consumer goods, X and Y, are produced from a single
factor input, labor, according to the production functions:
Y = 3Ly
X = 3Lx
where Ly and Lx are the qua
Dec 17, 2015
Answer all questions, showing all your work. Try to use diagrams wherever possible. Time
allowed: 2 hours. Each question is worth 20 points. Good luck!
1. John consumes only two goods, x and y, and his utility function is
EC 501: Problem Set 12
(Due in class on Thursday, December 8)
The Johnsville Co. produces pipe insulation at a cost of $10 per ton. It is also known that for
every ton of insulation it produces it also vents into the air one ounce of asbestos fibers, w
EC 501: Problem Set 9, Solutions
1. (a) Under perfect competition in the long run, each firm will produce at
the minimum point of the AC curve. Now
and so AC is at a minimum where
= 2 + 0.5 = 0
q = 20.
When q = 20, AC = 20,
EC 501: Problem Set 10, Solutions
1. (a) The monopolist would set MR=MC. Now total revenue is
R(Q) = p(Q) Q = 30
so marginal revenue is
M R(Q) = 30 Q.
Profit is maximized where MR=MC :
30 Q = 20
Q = 10.
From the demand curve, we can find P=25, and
EC 501: Problem Set 7, Solutions
1. (a) We can find the ppf by solving the problem:
M aximize Y = 3Ly
subject to X = 3Lx
and Lx + Ly = 66.
In this case, because there is only one factor of production, the constraints
combined become the ppf:
Lx + Ly = 66
EC 501: Problem Set 11
(Due in class on Tuesday, December 6)
Acme Drug Co. has a patent on the drug A-rene, the annual demand for which can be described by
the demand curve:
Q = 4500 - 300P.
Production of the drug requires an annual fixed cost of $3,00
EC 501: Problem Set 10
(Due in class on Tuesday, November 22)
The annual demand for natural gas in Zuma is given by the formula
Q = 60-2P
where P is the price and Q the quantity demanded. Marginal cost is constant at $20 per unit and there is
EC 501: Problem Set 6
(Due in class on Thursday, October 16)
The Widget Co. can produce widgets according to the formula:
q = 5K L
where q is the output of widgets, and K, L are the quantities of capital and labor used.
(a) Are there constant, increasi
EC 501: Problem Set 7
(Due in class on Tuesday, October 21)
1. Adam and Barbara both buy widgets. Their demand curves are respectively
p = 50 - 2 qa and p = 50 qb.
What is their combined demand curve for widgets?
2 There are 100 people in Slobovia whose i
1 Substitution Eect, Income Eect, Gien Goods
14.01 Principles of Microeconomics, Fall 2007
September 19, 2007
Substitution and Income Eect, Individual and
Market Demand, Consumer Surplus
1. Chap 4: Substitution Eect, Inc