January Examinations 2015

Transcription

1 January Examinations 2015 DO NOT OPEN THE QUESTION PAPER UNTIL INS TRUCTED TO DO SO BY THE CHIEF INVIGILATOR Department Module Code Module Title Exam Duration (in words) ECONOMICS EC2000 INTERMEDIATE MICROECONOMICS 2 hours CHECK YOU HAVE THE CORRECT QUESTION PAPER Number of Pages 5 Number of Questions 3 Instructions to Candidates The exam is made of two parts. The first part is multiple choice, and carries 35 points. There is no negative marking, and each question carries equal marks. Please list your chosen answers on the first page of your paper. The second part is made of 2 problem sets. Problem 1 carries 40 points, problem 2 carries 25 points. For this exam you are allowed to use the following Calculators Yes YES Books/Statutes No Version 1 Page 1 of 5

2 Additional Stationery No Part 1: Multiple Choice Questions 1. Each question has only one correct answer. 1.1 In a Cobb Douglas technology, increasing returns to scale: a. Are not compatible with decreasing factor productivities; b. Are consistent with decreasing productivity of at most one factor; c. Are consistent with decreasing productivity of both factors. 1.2 If preferences are homothetic, then: a. The income-consumption curve is a straight line, starting at the origin and positively sloped; b. Goods are perfect substitutes; c. The income-consumption curve is flat. 1.3 In the buyer-seller model: a. A Giffen good must be inferior; b. A good can never be Giffen; c. A Giffen good can be normal when the consumer is a net seller of the good whose price has inreases. 1.4 Returns to scale affect: a. The shape of each isoquant; b. The shape of the isocost; c. The distance between isoquants of increasing production levels. Version 1 Page 2 of 5

3 1.5 In the short run, decreasing marginal productivity of the variable factor implies: a. A strictly convex total cost function; b. A strictly concave total cost function; c. A decreasing marginal cost function. 1.6 When marginal costs are constant and fixed costs are strictly positive, then the average cost curve: a. Is U shaped; b. Is everywhere increasing; c. Is everywhere decreasing. 1.7 According to cost-benefit analysis, efficiency requires: a. All firms to face the same marginal cost; b. Each firm to operate at minimal average cost; c. All firms to have zero profits. 1.8 Which of these measures is ordinal (that is, refers to the preference ordering)? a. Marginal Utility; b. Marginal Rate of Substitution; c. Cross second derivative of the utility function. 1.9 When returns to scale are decreasing, then: a. The competitive firm has no profit maximizing production plan; b. The total cost function is strictly convex; c. The average cost function is decreasing When technoogy is of the perfect complements type,, 2, then: a. Returns to scale are constant; b. Returns to scale are decreasing; Version 1 Page 3 of 5

4 c. Independently of factors prices, the use of capital is always twice the use of labor. Part 2: Problem Sets 2. Paul s preferences are represented by the following utility function, ln ln Prices are p 1 =1 e p 2 = Using the available information, say whether the consumption bundle, 10,5 can be optimal for Paul. 2.2 Suppose now that Paul s income is 20. Can Paul afford the consumption bundle, 10,5? 2.3 Derive now the analytical function representing the Engel curve for Paul. Is good 1 a normal good? 2.4 Explain briefly and rigorously why all you answers at the previous points would not change if Paul s utility function was,. 2.5 Consider now Anna, whose preferences are represented by the utility function, 4 2 Let 1. Income is Compute the loss in Anna s Consumer s Surplus caused by an increase in from 1 to 2, keeping the price of good 2 constant. Draw a picture where the loss in Consumer s Surplus is clearly indicated. Version 1 Page 4 of 5

5 2.7 Discuss, without computations, what would be Anna s associated measures of Equivalent Variation and Compensating Variation. 2.8 Compute for which level of good 1 the elasticity of Anna s demand for good 1 with respect to its own price is unitary. Are larger values of good one associated with an elastic or inelastic demand? 3. Consider a perfectly competitive market where 10 firms all operate with technology,, where K and L indicate capital and labor. Both factors prices are equal to Derive the total and marginal cost functions for each of these firms. Discuss the shape of the marginal cost function and relate it to the returns to scale of the technology. 3.2 Derive the supply function for each of these firms. 3.3 Derive the market supply function. 3.4 Assume now that market demand is given by Compute the equilibrium market price. 3.5 Suppose now that the government regulates the market, setting a cap on the price of p =20. Assuming that the quantity produced is the one supplied by firms at that price (and that therefore there is rationing on the demand side), what is the deadweight loss associated with this measure? END OF PAPER Version 1 Page 5 of 5