EC3000 Advanced Microeconomics – Suppose that a firm produces some level of output

| April 14, 2018

EC3000 Advanced MicroeconomicsCourseworkInstructions: The coursework below contains 10 multiple choice questions. For each question, there are five potential answers: (a), (b), (c), (d), and (e). Circle the letter(s) corresponding to your answer(s) for each question. (Notice that you can circle multiple letters ifyou believe that a question has multiple correct answers.)Marking: For each question, you will be awarded points for circling correct answers andfor not circling incorrect answers. For example, suppose that (a) is a correct answer: if youcircle (a), then you will be awarded 1 point, and if you do not circle (a), then you will beawarded 0 points. Similarly, suppose that (b) is an incorrect answer: if you circle (b), thenyou will be awarded 0 points, and if you do not circle (b), then you will be awarded 1 point.For every question that is awarded 5 points in total, you will be awarded 5 additional points.Deadline: You have one week to complete this coursework. The deadline for handing in atReception in the Astley Clarke Building is Thursday, 10 December 2015, at 3.00pm. Latesubmissions will not be accepted.1(1) Suppose that a firm produces some level of output y ≥ 0 according to the productionfunction f : R2 → R+ , which is given by+y = f (K, L) = K + L,where K ≥ 0 is capital and L ≥ 0 is labor. Further suppose that r > 0 is the rental ratefor capital and w > 0 is the wage rate for labor, and that the firm wants to minimizeits costs in order to produce some level of output y. Which of the following statementsare false? Circle all that apply.(a) The conditional factor demand for capital is always positive.(b) The conditional factor demand for labor is always positive.(c) The conditional factor demand for capital is never positive.(d) The conditional factor demand for labor is never positive.(e) The conditional factor demand for capital is always equal to the conditional factordemand for labor.(2) Suppose that a consumer has a preference ordering over R+ that is represented bythe utility function u : R+ → R, which is given according tou(x1 , x2 , . . . , x ) =ui (xi ).i=1Which of the following statements are true? Circle all that apply.(a) The marginal rate of substitution between any two goods is independent of theconsumption of those same two goods.(b) The marginal rate of substitution between any two goods is not independent ofthe consumption of those same two goods.(c) The marginal rate of substitution between any two goods is independent of theconsumption of any other goods.(d) The marginal rate of substitution between any two goods is not independent ofthe consumption of any other goods.(e) The marginal rate of substitution between any two goods is necessarily equal tothe marginal rate of substitution between any two other goods.(3) Suppose that a consumer has a preference relationon R+ that is complete andtransitive. When does there exist a utility representation of ? Circle all that apply.2(a) A representation exists ifis continuous and locally nonsatiated.(b) A representation exists ifis continuous and strictly monotonic.(c) A representation exists ifis continuous and strictly convex.(d) A representation exists ifis continuous, locally nonsatiated, and strictly convex.(e) A representation exists ifis continuous, strictly monotonic, and strictly convex.(4) Consider a firm that requires more than one costly inputs to produce a single output.Suppose that the firm’s production function is continuous, strictly increasing, andstrictly quasiconcave, and also exhibits constant returns to scale (CRS). Which of thefollowing statements are true for a cost-minimizing firm? Circle all that apply.(a) The firm’s costs are strictly increasing in output.(b) The firm’s costs are constant per unit of output.(c) The firm’s marginal costs are strictly increasing in output.(d) The firm’s marginal costs are constant at every level of output.(e) The firm’s marginal costs are zero.(5) Suppose that a preference relation on R+ is complete and transitive. Let and ∼denote the strict and indifference relations on R+ , respectively, which can be derivedfrom . Which of the following statements are false? Circle all that apply.(a) The strict relationis complete.(b) The indifference relation ∼ is complete.(c) The strict relationis transitive.(d) The indifference relation ∼ is transitive.(e) The strict relationand the indifference relation ∼ are complete and transitive.(6) Suppose that a consumer has a lexicographic preference ordering over R2 , i.e., for+any x, y ∈ R2 , xy if x1 > y1 , or if x1 = y1 and x2 ≥ y2 . Which of the following+statements are true? Circle all that apply.(a) The preference is complete and transitive.(b) The preference is complete, transitive, and continuous.(c) The preference is complete, transitive, and locally nonsatiated.3(d) The preference is complete, transitive, continuous, and locally nonsatiated.(e) The preference is neither complete nor transitive.(7) Suppose that a consumer has a preference relationstatements are true? Circle all that apply.over R+ . Which of the following(a) The preference relation is strictly monotonic if it is locally nonsatiated.(b) The preference relation is locally nonsatiated if it is strictly monotonic.(c) The preference relation is strictly monotonic if it is strictly convex.(d) The preference relation is strictly convex if it is strictly monotonic.(e) The preference relation is locally nonsatiated if it is strictly convex.0, and has(8) Suppose that a consumer must choose from R2 , faces prices p = (p1 , p2 )+2income w > 0. Her indirect utility function v : R++ × R++ → R is given according tov(p1 , p2 , w) =14p134p2w4 .Which of the following statements are false? Circle all that apply.(a) The demand for good 1 is more income elastic than the demand for good 2.(b) The demand for good 2 is more income inelastic than the demand for good 1.(c) The demand for good 2 is more income elastic than the demand for good 1.(d) The demand for good 1 is more income inelastic than the demand for good 2.(e) The income elasticity of demand for good 1 is always equal to the income elasticityof demand for good 2.(9) Suppose that a consumer has a preference ordering over R+ that can be representedby a utility function u : R+ → R. Further suppose that the consumer faces pricesp = (p1 , p2 , . . . , p )0 and has income w > 0. Which of the following statements aretrue? Circle all that apply.(a) If u is locally nonsatiated, then the consumer exhausts her budget.(b) If u is strictly increasing, then the consumer exhausts her budget.(c) If u is quasiconcave, then the consumer exhausts her budget.(d) If u is strictly quasiconcave, then the consumer exhausts her budget.4(e) If u is strictly quasiconvex, then the consumer exhausts her budget.(10) Suppose that a firm produces some level of output y ≥ 0 according to the productionfunction f : R2 → R+ , which is given by+√√y = f (K, L) = ( K + L)2 ,where K ≥ 0 is capital and L ≥ 0 is labor. Further suppose that r = 10 is the rentalrate for capital and w = 5 is the wage rate for labor, and that the firm is perfectlycompetitive. Which of the following statements are true? Circle all that apply.(a) The market output price is less than one.(b) The market output price is greater than two.(c) The market output price is less than three.(d) The market output price is greater than four.(e) The market output price is less than five.5

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