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ECO 6122-Assignment I

This document provides the assignment instructions for ECO 6122 Microeconomic Theory IV. It includes 10 problems across 3 sections related to technical rate of substitution, elasticity of substitution, isoquants, production functions, profit maximization for competitive firms, and supply and demand with multiple identical producers. Students are asked to solve 7 specific problems listed at the end and may optionally solve additional problems for further practice.

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76 views2 pages

ECO 6122-Assignment I

This document provides the assignment instructions for ECO 6122 Microeconomic Theory IV. It includes 10 problems across 3 sections related to technical rate of substitution, elasticity of substitution, isoquants, production functions, profit maximization for competitive firms, and supply and demand with multiple identical producers. Students are asked to solve 7 specific problems listed at the end and may optionally solve additional problems for further practice.

Uploaded by

lnade033
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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ECO 6122 Microeconomic Theory IV

Assignment I (Due September 28, 2015)


The homework consists of only 10 problems.
1. a.) Provide a literal and mathematical definition for each of the following notions:
(i) (2) Technical rate of substitution
(ii) (2) Elasticity of Substitution
(iii) (2) Elasticity of scale
(iv) (1) Isoquant
b.) (8) Suppose that the production function of a firm is

( x 1 ,2 x 2)
f (x1 , x2 )=x 1 +min . Derive

(i)-(iv).

2. A profit-maximizing competitive firm uses


output

y .

Let

( p)

p=( p y , p1 , ..., pn ) , where

be

py

the

x 1 , ... x n

inputs

maximum

profit

to produce one

attainable

pi

is the price of the output and

at

prices

the price of the

x i -good.
a.) (4) Show that
b.) (10) Show that

( p)

( p)

is homogeneous of degree 1 in

p .

p .

convex in

c.) (4) Suppose that the firm faces randomly fluctuating prices due to an exogenous
factor. We imagine that the price vector is
probability

1q

with probability

so that average prices are

p'

with

p' ' =qp+( 1q) p ' . Is the price

fluctuation better for the firm than a price stabilization at

3. A firm produces output of chips

and

using a cost function

increasing marginal costs. Of the chips it produces, a fraction

''

? Why?

c ( y ) , which exhibits
1

are defective

p and the chip market is

and cannot be sold. Working chips can be sold at a price


highly competitive.
a.) (2) Calculate the derivative of profits with respect to

and its sign.

b.) (2) Calculate the derivative of output with respect to

and its sign.

c.) (7) Suppose that there are


demand function, and let

dp
d

p()

identical chip producers. Let

D( p)

be the

be the competitive equilibrium price. Calculate

and its sign.

Additional problems
Solve problems 1.10, 2.5, 3.5, 4.6, 5.2, 5.11, 6.1
Note that solutions to odd number problems are provided in your book. You should
pay attention to all those problems. Doctoral students are advised to solve all the
problems, although they may only return their solutions to the assigned problems
above.

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