problem 1: Evaluate the MU of x in the following utility functions at:
u = (2x2y) (14x + y)
u = a/(x2y)
problem 2: Suppose you obtain utility from consuming x according to u = 40 x - 2x2.
i) Each x costs $20 and you have a budget of $100. How many x should you buy?
ii) Now assume that you have a budget of $1000. How many x should you buy?
problem 3: Find the optimal amount of x and y to buy if you have the following utility functions and budget constraints.
i) u = x1/2y + x and px = 4, py = 2 and I = 100
ii) u = 2x + y and px = 4, py = 2 and I = 100
problem 4: Find the optimal amount of x and y to buy if you have the following utility functions and budget constraints.
i) u = min(x, y) and px = 4, py = 2 and I = 100
ii) u = min(5x, y) and px = 4, py = 2 and I = 100
problem 5: Find the marginal rate of substitution between x and y (MUx/MUy) for the following utility functions:
i) u = x1/2y + x evaluated at x = 15 and y = 10
ii) At what price ratio would the consumption in part above be optimal?
problem 6: Suppose that a firm produces a product with two inputs, capital K and labor L. Labor costs $7 per unit and capital costs $8. The price of the output is $20. The firm’s production function is y = Zk1/2 ZL1/4
i) Find the profit-maximizing set of inputs.
ii) Suppose that the production function were y = Zk1/2 ZL1/2. Describe why it is not possible in this case to find the profit-maximizing set of inputs.
iii) Now suppose, again for the production function y = Zk1/2 ZL1/2, that in the short run Zk = 25. Find the short run input of L and the output y.
problem 7: Find the demand function for x for the following utility functions:
i) u = xy. y = 10, I = 100
ii) u = x1/3y1/3. y = 10, I = 100
iii) u = min[x, 2y]. y = 10, I = 100
problem 8: Assume a competitive industry. Ten perfectly competitive firms have production function y = Zk1/2 ZL1/2. Pk = 1 and PL = 2. There are 1000 consumers, who each have identical utility function u = xy. The price of x is 3 and each consumer has income 100. Find theprice, the total number of units of y consumed, and the total amount of each type of input used.
problem 9: Two types of consumers live on an island. They all consume only xylophones. The consumers live only two periods, because xylophones are not actually very nutritious. The two types of consumers are the perfect substituters (PS) and the CDs. The PS utility function is u = x1 + x2. The CD utility function is u = x12x2. There are 10 PS individuals and 15 CD individuals. Each PS person has endowment of 100 in the first period and 100 in the second period. Each CD person has endowment of 100 in the first period and 0 in the second period.
i) Find the equilibrium interest rate.
ii) Find the consumption in period 2 of a PS individual.