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7 views2 pages

ProblemSet0 1

Uploaded by

Juan Toledo
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Microeconomic Theory

Universidad Carlos III de Madrid


BA in Philosphy, Politics, and Economics
2023-2024

Problem set 0: Individual optimization

1 Consumption

Consider the following utility functions


1 1
U (x, y) = x 4 y 2 (1)

U (x, y) = 2 ln x + ln y (2)

U (x, y) = min {3x, y} (3)

 1 1
2
U (x, y) = x 2 + y 2 (4)

1
U (x, y) = x 3 + y, (5)

U (x, y) = x + ln y (6)

U (x, y) = 2x + 3y (7)

1 1
U (x, y) = (x + 2) 2 (y + 1) 2 (8)
For each one of them
1. Derive marginal rates of substitution.
2. Derive demand functions. For cases (5)-(8), pay attention to the cases in which solutions are not interior.

2 Production

Consider the following production function:


3 1
x = f (k, l) = 10k 4 l 4 (9)
x = f (k, l) = 3 min {k, 2l} (10)
1
x = f (l) = 2l 2 (11)

1 1
x = f (k, l) = k 4 l 2 (12)

x = f (k) = 5k (13)
For each of them answer the following questions:
1. Does it have increasing, constant or decreasing returns to scale?
2. Write profit as a function of the factor of production, set up and solve the profit maximization problem.

3. Can you derive the (unconditional) factor demand functions?

(a) If your answer is no, explain why.


(b) If your answer is yes, derive
i. The (unconditional) factor demand functions;

1
ii. The supply function;
iii. The profit function.

4. Set up and solve the cost minimization problem and derive:

(a) Conditional (or derived) factor demand functions.


(b) Total cost function.
(c) Marginal cost function.
(d) Is marginal cost increasing, constant or decreasing?
(e) For the cases in which the answer to question 3 was yes:
i. Equate marginal cost to price and derive the supply function. Verify that the supply function that you
have obtained coincides with the one you had obtained in part 3b.
ii. Using the supply function, derive the profit function. Verify that the profit function that you have
obtained coincides with the one you had obtained in part 3b.
iii. Using the supply function and the conditional factor demand functions derive the unconditional factor
demand functions. Verify that the unconditional factor demand functions that you have obtained
coincides with the ones you had obtained in part 3b.

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