Scribd
Upload
119 views2 pages

Extra Credit Assignment

This document outlines 8 problems for a microeconomics problem set. Problem 1 involves cost minimization and profit maximization for a firm with a Cobb-Douglas production function. Problem 2 analyzes optimal insurance decisions for a consumer facing fire risk. Problem 3 examines labor-leisure choice. Problem 4 analyzes contract curves for an economy with two goods and consumers. Problems 5-7 cover compensating variation, tax incidence, and monopoly. Problem 8 sets up a general equilibrium model with two consumers and one producer.

Uploaded by

Ananya Chaba
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
119 views2 pages

Extra Credit Assignment

This document outlines 8 problems for a microeconomics problem set. Problem 1 involves cost minimization and profit maximization for a firm with a Cobb-Douglas production function. Problem 2 analyzes optimal insurance decisions for a consumer facing fire risk. Problem 3 examines labor-leisure choice. Problem 4 analyzes contract curves for an economy with two goods and consumers. Problems 5-7 cover compensating variation, tax incidence, and monopoly. Problem 8 sets up a general equilibrium model with two consumers and one producer.

Uploaded by

Ananya Chaba
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

Problem set 9

Micro 1
Due date: Dec 8, 2019

Total: 110 points


1. Consider a firm who faces the following production function:
1/3 2/3
f (x1 , x2 ) = x1 x2

(a) (7 points) Solve the cost minimization problem for the firm and find C(y).
(b) (8 points) Using the cost function solve for the profit maximization of the
firm and find the supply function.

2. Consumer a consumer who faces a fire risk on his property. With probability 1/3
the value of his property will be 4 due to the fire accident. If the fire accident
does not take place then the value of his property is 9, both measured in terms of
thousands of dollars. If the insurance company charges a premium of .5.
(a) (10 points) What would be the optimal decision of the consumer if his vNM
utility functions are given by
√
u(x) = x.

(b) (5 points) What is the expected value of his property at the optimal insurance
choice. What is the expected utility? Is this consumer risk-neutral?

3. Consumer the following utility function of the consumer,

u(c, L) = ln c + L

(a) (5 points) Solve for the optimal choice of the consumer when the wage rate
in w, non-labor income is 100 and the total time available T = 10. Mention
all cases.
(b) (5 points) Draw the price offer curve as w changes.

4. (5 points) Consider a two-good, two-consumer economy where the endowments of


agents A and B are (3, 2) and (2, 3) and the utility functions are same given by

u(x1 , x2 ) = max {x1 , x2 } .

Show that the contract curve consists of only two points (5, 0) and (0, 5).

1
5. (10 points) Consider the following utility function
√
u(x1 , x2 ) = x1 + x2

If the initial prices are (2, 1) and income is 10 and new prices are (1, 1) calculate the
compensating and equivalent variation and verify that they are equal in magnitude.
6. Consider the market for x where the demand and the supply is given by

D(P ) = 100 − 7p
S(p) = 3p

(a) (2 points) Solve for the market equilibrium.


(b) (5 points) If a tax of t = 5 levied on transaction what would be the new
equilibrium prices and quantity.
(c) (3 points) Which side of the market shares the higher burden of taxes and
why? (Hint: use elasticity)
7. Suppose a monopolist is operating in a market whose cost function is given by
1
C(y) = y 2 .
2
(a) (5 points) What would be the equilibrium quantity and prices in the market?
(b) (5 points) What is the deadweight loss due to monopoly?
8. Consider an economy with two consumers A and B whose utility functions are
given by,

uA (xA A A A
1 , x2 ) = ln x1 + ln x2
uB (xB B A B
1 , x2 ) = ln x1 + x2 .

Suppose the initial endowments are given by (2, 8) and (4, 4) for consumer A and
B respectively.
(a) (15 points) Solve for the competitive equilibrium for this economy.
(b) (5 points) Find the contract curve (no diagram needed).
(c) (5 points) Now consider there is only one producer in the economy whose
production possibility frontier is given by,

2X1 + X2 = 16

For what price the firm would produce both goods. When would he produce
only good 2.
(d) (10 points) Solve for the equilibrium for this economy with the producer when
he produces both goods.

Page 2

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy