Question 1: Score 1/1


Comment: 

Question 2: Score 3/3


Comment: THIS QUESTION
IS INCORRECT, OR ATLEAST THE ANSWERS THEY WANTED FROM YOU!  Since the two consumers have the same utility
functions, it doesn’t really matter that there are 2. Might as well be 50.
This would only matter for the amount of F and D per consumer, not for
the total amounts! (which all questions are about) Since this is CobbDouglas, you know that, in order
to maximize utility, the two products need to be distributed according to
their powers: So they both want their 100% income split up in 20%
food, 80% drinks. Prices should thus reflect this, so ¼ is the relative price. As said before you know that they want 80% drinks
with 20% food. So, F=4D and D=0.25F. Solve the F= function replacing either F
or D to find the other’s value. 

Question 3: Score 1/1


Comment: 

Question 4: Score 1/1


Comment: Firm 1 is the leader, so firm 2 follows. Therefore
we can write Q2 as a function of Q1: Firm 2 wants to maximize its profit: (PMC2)Q2FC (FC
is fixed costs, although you won’t use it here) This gives: Profit 2 = (100010Q110Q20)Q280 To maximize it take derivative and equal it to 0: 100010Q120Q2=0 Q2=(100010Q1)/20 Ok so now calculate the profit function of firm 1: (PMC1)Q1FC = (100010Q110Q24)Q110 Replace Q2 with the value you found earlier: (100010Q110((100010Q1)/20)4)Q110 Take the derivative, equal it to 0, and you have Q1* 

Question 5: Score 1/1


Comment: Basically follow same procedure as above, except do
the same with firm 2 as you did with firm 1 (so don’t replace Q2 or
anything). You will get Q2(Q1)=… and
Q1(Q2)=… Solve Q1(Q2) using the formula Q2(Q1) you found, and
solve to find Q1* 

Question 6: Score 2/2


Comment: Again CobbDouglas, so person A wants to spend 30% of
his income on X1 and 70% on X2. Person B wants to spend 70% of his income on X1 and
30% on X2. Use the initial endowment point to find their
current wealth: M(person A) = 3Px1+3Px2 M(person B) = 9Px1+2Px2 You also know that X1total=12 and X2total=5 (adding
the values on the endowment point) Now use the preferred income distributions you had
earlier to calculate what they (ideally) would have of X1: Person A will spend 30% of M on good X1:
0.3(3Px1+3Px2) Good X1 costs Px1, so in total he would like X1A=(0.3(3Px1+3Px2))/Px1 Do the same for person B, this gives
X1B=(0.7(9Px1+2Px2))/Px1 Now we have X1A and X1B. We know X1A+X1B should
equal 12. 12=X1A+X1B Solve and you will get (in this case) 4.8Px1=2.3Px2 Ratio is 2.3/4.8=0.48 

Question 7: Score 1/1


Comment: 

Question 8: Score 1/1


Comment: 