EC411, Homework assignment, Fall 2009

Question 1.
a. Suppose that the consumers demand function is x(p; m) = ( 2p2m ; m ): Could
1 +p2 2p1 +p2

you think of a utility function or preferences such that this demand function could be
the result of its maximization? Are the preferences convex? (you can show whether it
is convex or not graphically).
Suppose that the consumers utility function is u(x) = minfx1 ; x2 g:
b. Find the expenditure function and calculate its derivative w.r.t. prices. What did
you nd?
c. Let p0 = (1; 1); p1 = (2; 1) and m = 1: Compute the EV and the CV . Is EV CV ?

Question 2.
p
a. For the production function f (x) = x1 + x2 ; derive the cost function and the
conditional factor demand.
b. Suppose that the cost function for all rms in a perfectly competitive industry
1
of one ouput is C(w; y) = y 2 (w1 w2 ) 2 ; where w1 = 3 and w2 = 3 (prices of input) and
y denotes output. The demand is D(p) = 10 p: The equilibrium short run price for
ouput is p = 2. What is the number of rms in the market?