This study source was downloaded by 100000806301494 from CourseHero com on 02 27 2022 06 15 37 GMT 06 00 https www coursehero com file 79165429 ECON2210 Midterm D 1pdf Intermediate Microeconomics Econ2210 D Midterm Examination Spring 2020 31 Mar 2020 2 00 pm 4 00 pm Instructions 1 This is an individual assignment and students are required to submit their own work subject to plagiarism check 2 You should write down your names and UID on the top left corner on each page of your answer scripts 3 All answers should be hand written Typed answer is not accepted 4 Your submission has to be one single pdf file via a submission link on Moodle 5 Please use the last 30 minutes to do the scanning and uploading If your submission is received 5 minutes after the deadline 25 of total marks will be deducted and 50 after 10 minutes 75 after 15 minutes 100 after 20 minutes 6 A failsafe option would be to send your file by email antonyc hku hk or hkueconomics2019 gmail com 7 For any emergent problems you shall contact Antony by Whatsapp 852 6218 0742 Wechat xid yo3lwldnzoe722 or join the Zoom meeting https zoom us j 9579666944 This study source was downloaded by 100000806301494 from CourseHero com on 02 27 2022 06 15 37 GMT 06 00 https www coursehero com file 79165429 ECON2210 Midterm D 1pdf Part 1 Multiple choice 20 points 4 points for each 1 Concerning a good like coke which of the following is true concerning the income effect of a decrease in price A It will lead to an increase in consumption only for a normal good B It always will lead to an increase in consumption C It will lead to an increase in consumption only for an inferior good D It always will lead to a decrease in consumption 2 General Motors estimates that U S demand for its newest product will be Qus 25 000 0 25P Export demand will be Qex 25 000 0 75P The total market demand curve for this product will be a A straight line with a slope of 0 5 B straight line with a slope of 1 0 C kinked line with the kink at Q 1 000 D kinked line with the kink at P 40 000 E none of the above 3 A farmer uses M units of machinery and L hours of labor to produce C tons of corn with the following production function C L M1 1 This production function exhibits A decreasing returns to scale for all output levels B constant returns to scale for all output levels C increasing returns to scale for all output levels D no clear pattern of returns to scale 4 Suppose a firm has a production function min where K is plotted on the y axis L on the x axis the output expansion path A is upward sloping with an increasing slope B is upward sloping with an decreasing slope C is a linear straight line with a slope of 2 D is a linear straight line with a slope of 0 5 This study source was downloaded by 100000806301494 from CourseHero com on 02 27 2022 06 15 37 GMT 06 00 https www coursehero com file 79165429 ECON2210 Midterm D 1pdf 5 A firm has a production function of 2 If the wage rate per labour is 1 rental rate per capital is 8 If the number of capital is fixed at 1 units in the short run to produce 20 units of output the total cost is A 48 B 57 C 72 D 108 Part 2 True or False 20 points 2 3 points Each State if the following statements are true or false 2 points Only clearly explained answers earn full credit 3 points 1 Max consumes two goods x and y His utility function is U x y max x y Therefore x and y are perfect substitutes for Max 2 Antony s utility for two goods i e X and Y is u X Y X0 5Y0 5 His price elasticity of demand for good X decreases in absolute value as price of X decreases 3 When the two goods are perfect complements the entire change in demand from a price change is due to the substitution effect 4 The strong axiom of revealed preference requires that if a consumer chooses x when he can afford y and chooses y when he can afford z then he will not choose z when he can afford x This study source was downloaded by 100000806301494 from CourseHero com on 02 27 2022 06 15 37 GMT 06 00 https www coursehero com file 79165429 ECON2210 Midterm D 1pdf Powered by TCPDF www tcpdf org Part 3 Short answer questions 40 points 1 10 points Tyra consumes two goods x and y She does not care about small differences That is she prefers the bundle x y to the bundle x y if and only if xy x y 1 Otherwise she is indifferent between the two bundles a Show that the preferred relation is transitive for Tyra b Show that the indifference relation is not transitive for Tyra hint show counter example 2 10 points The following table presents Brad s marginal utility for each of the four goods she consumes to exhaust her income The price of Good 1 is 1 the price of Good 2 is 3 the price of Good 3 is 2 and the price of Good 4 is 5 Explain which consumption bundle in the table would maximize Mary s level of utility Bundles Marginal Utilities Good 1 Good 2 Good 3 Good 4 A 0 03 1 61 0 42 0 59 B 0 17 0 51 0 34 0 85 C 0 23 0 61 0 30 0 27 D 0 27 0 42 0 11 0 99 3 20 points Goggle is a company producing candies C and has a production function C min 0 5S B where S is units of sugar and B is units of butter a Draw Goggle s isoquants for C 10 and C 20 Use isoquants to show Goggle s returns to scale b Suppose price of one unit of sugar is 3 and price of one unit of butter is 2 If Goggle were to produce 1000 candies what is the optimal amount of sugar and butter it should use to minimize costs c WeTube produces artificial sweeteners A which can be used as a substitute of sugar in producing candies Suppose one unit of artificial sweetener replaces two units of sugar If Goggle uses artificial sweeteners what would be Goggle s production function d What would be the price of artificial sweetener that would make Goggle indifferent between using artificial sweetener and using sugar for producing candies