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Time of Submission: At the beginning of Midterm 2 ( Your submission of midterm script will be considered only after you have submitted the assignment). Person to be submitted to :ME Answer all the questions. The parenthesis carries the credit for each question.

1) Given a production function, y = Ax1 x2 x3 , where all the xs are factors of production and A is the technological constant, find out Marginal Product for each xs and elasticities. (5)

2 1

2) Suppose, we have a production function, Q = K 3 L2 . Derive the following: (3+2) a) Marginal Rate of technical substitution of K for L. b) Degree of homogeneity. 3) Determine the concavity/convexity/ neitherness of the following function: ( , and all are less than 1) (5) y = x1 + x2 + x3 4) Show that z = x 2 y 2 + w 3 is non-homogenous.

1 3 2

(2)

5) A monopolist produces two commodities, 1 and 2. Given the demands and cost of production for both the commodities, (given below) optimize profit. (Show the second order conditions) Q1 = 100 2 P + P2 1 Q2 = 120 + 3P 5 P 1 2 C = 50 + 10Q1 + 20Q2 6) A discriminist monopolist produces only one commodity but supplies it in two markets. The demands in different markets and the cost function are the following, P = 100 Q1 1 P2 = 120 Q2 C = 20Q where, Q = Q1 + Q2 (8) (10)

Optimize the profit. (Show that the stationary points do maximize). Find out the two

elasticities in different market and rationalize that the market with lower elasticity actually has a higher price. 7) Optimize the following functions: (Find max, min, neitherness using SOC) 2 2 2 a) y = 2 x1 + x2 + 4 x3 x1 + 2 x3 (6) b) z = 2 y 3 x3 + 147 x 54 y + 2 (8)

8) Given the following demand functions and cost function, show that the discriminatory profit is higher than the non-discriminatory profit for a monopolist. Q1 = 24 0.2 P 1 Q2 = 10 0.05 P2 C = 35 + 40Q where, Q = Q1 + Q2 (9)

9) Optimize the profit given the output function, Q = L0.2 K 0.6 , where the price per unit of the product is 100; cost of labor per labor hour is 10 and cost of capital per unit is 20. (10)

0.25 0.75 10) Maximize the following utility function, U = x1 x2 , subject to the budget constraint, 2 x1 + 4 x2 = 100 . (10)

11) Minimize, C = 2 K + 3L subject to 72 = K 0.3 L0.5 . 12) Find the quasi-concavity or quasi-convexity of the following function: z = ( x a ) 2 + ( y b )2 ( a and b are less than 1)

(13)

(4)

13) Given a Cobb-Douglas production function with constant returns to scale, Q = AK 0.4 L0.6 , find out the following: a) Degree of homogeneity and expression interms of capital labor ratio, .(2) b) Find out APPL , APPK , MPPL , and MPP . (8) K c) Prove that, labor and capital shares are the same as the elasticities. (4) K .MPPK + L.MPPL = Q d) Prove, (3) e) Prove that when MPPK= 0 then MPPL=APPL (3)

14) Given a utility function, U = xy + x , subject to the budget constraint, B = xPx + yPy a) Show that the optimal values maximize. (15) b) Find out the income effect, price effect and relation between two commodities for both the products. 15) We have the following expressions: K a) Q = L ( ) where, = L b) APPL= ( ) ( ) c) APPK= d) MPPL= ( ) ( ) e) MPPK= ( ) Now prove the following: I. MPPK is measured by the slope of APPL. II. MPPL=APPL- (MPPK)=APPL- (Slope of APPL) (2) (3)

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