1.
Check if the following
production function is constant, decreasing, or increasing return to scale:
a. .gif”>
b. .gif”> = 2 6
2.
True or False: Marginal Cost curve
is intersecting the minimum of Average Fixed Cost curve.
3.
Suppose your level of
satisfaction from leisure and income from working is given by
= ln + ln , where represent incomes and represents leisure, and the
wage rate is $15 per hours.
a. Calculate how many hours per day you should work to maximize your
satisfaction.
b. Now, suppose you win a lottery that gives you $100 every day,
calculate how many hours per day you should work now to maximize your
satisfaction.
4.
Suppose your life can be
divided into two time periods: period 1 (working period) and period 2
(retirement period). The total income you get from working in period 1 is
$2,000,000, while you know for sure that your total income from social security
in the retirement period is $500,000. Your level of satisfaction from consuming
goods in both
periods is
given by.gif”>, where 1 is the amount of money you spend
for consumption
in period 1, 2 is the amount of money you spend for consumption in period 2, and r
is the interest rate, which is assumed to be 5%.
a. Calculate how much money that you should allocate for consumption in
period 1 and period 2 to maximize your satisfaction.
b.
If interest rate rise to 10%,
will you consume more or less in first period? Explain.