Problem sets for Microeconomics II [110051-0471]

. The chief financial officer approaches the Recruiting officer, and asks for a
copy of the report. He says that he would like to see a tuition change because
the school is facing a budget crunch. If the marginal cost of a student
is $2,750, what should tuition be in order to maximize profit
Exercise 2.4. Jonathan Livingstone Yuppie is a prosperous lawyer. Jonathan consumes
three goods, unblended Scotch whiskey ($20 per bottle), designer tennis
shoes ($80 per pair), and meals in French gourmet restaurants ($50 per meal).
After he has paid his taxes and alimony, Jonathan has $400 a week to spend.
a. Write down a budget equation.
b. Draw a three-dimensional diagram to show his budget set.
c. Suppose that he determines that he will buy one pair of designer tennis shoes
per week.
What equation must be satisfied by the combinations of the
restaurant meals and whiskey that he could afford
Exercise 2.5. Nancy Lerner is trying to decide how to allocate her time in studying
for her economics course. There are two examinations in this course. Her overall
score for the course will be minimum of her scores on the two examinations. She
has decided to devote a total of 1,200 minutes to studying for these two exams,
and she wants to get as high overall score as possible. She knows that on the first
examination if she doesn’t study at all, she will get a zero score on it. For every 10
minutes that she spends studying for the first examination, she will increase her
score by one point. if she doesn’t study at all for the second examination, she will
get a zero score on it. For every 20 minutes she spends studying for the second
examination, she will increase her score by one point.
Determine the optimal allocation of the time spent on studying for the examinations.
Show it on the graph.
Exercise 2.6. The utility maximizing consumer has his preferences over goods
x 1 and x 2 described by Cobb-Douglas utility function u(x 1 , x 2 ) = x a 1 x1−a 2
, where
a = 1/3.
a. Find the marginal rate of substitution of good x 1 with good x 2 .
b. Suppose that consumer’s disposable income is m = 20, the price of good x 1 is
p 1 = 5, and the price of good x 2 is p 2 = 4. What is the amount of good x 2
that consumer is willing to consume (Both goods are infinitely divisible).
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