Question

1. Consider the following information: Jessica’s utility function is U(x, y) = xy. Maria’s utility function...

1. Consider the following information:

  • Jessica’s utility function is U(x, y) = xy.
  • Maria’s utility function is U(x, y) = 1,000xy.
  • Nancy’s utility function is U(x,y) = -xy.
  • Chawki’s utility function is U(x,y) = xy - 10,000.
  • Marwan’s utility function is U(x,y)= x(y + 1).

Which of these persons have the same preferences as Jessica?

2. Suppose the market demand for a product is given by

Qd = 1000 −10P

     and the market supply is given by

Qs= −50 + 25P

  1. What are the equilibrium price and quantity?
  2. Calculate the Consumer Surplus.
  3. At the market equilibrium, what is the price elasticity of demand? Is demand elastic, unitary elastic or inelastic?
  4. Suppose the price in this market is $25. What is the amount of excess demand?

3. If production function is given by Q = KL, what would happen when both inputs double.

4. The production function is given by Q = K1/3L2,

a. Determine the marginal product of capital, MPk?

b. Does the law of diminishing marginal productivity apply for capital use?

5. Suppose MPL = 20 and MPK = 40 and the rental rate on capital is $10. If the level of production is currently efficient, what should the wage rate be?

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