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Problem Set 5 Solutions

This document provides a problem set covering quantitative economic analysis methods. It includes three problems: 1) Using the chain rule to find derivatives of functions with variables that are functions of time. 2) Calculating marginal rates of substitution and elasticities of substitution for production functions. 3) Expressing the derivative of a function with variables that are functions of time using the chain rule. The midterm exam for this class will cover the material in this problem set and is scheduled for September 30.

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justmejosh
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220 views

Problem Set 5 Solutions

This document provides a problem set covering quantitative economic analysis methods. It includes three problems: 1) Using the chain rule to find derivatives of functions with variables that are functions of time. 2) Calculating marginal rates of substitution and elasticities of substitution for production functions. 3) Expressing the derivative of a function with variables that are functions of time using the chain rule. The midterm exam for this class will cover the material in this problem set and is scheduled for September 30.

Uploaded by

justmejosh
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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EC 2104 Quantitative Methods for Economic Analysis

Problem Set 5
The material covered in this problem set may be tested on the midterm, which takes place on
September 30.
1. Find the following:
(a) Find
df
dt
for f(x, y) = x
2
y + e
y
, with x(t) = t

t and y(t) = t
2
.
We will use the chain rule:
df
dt
=
f
x
dx
dt
+
f
y
dy
dt
= 2xy

1
1
2

+ (x
2
+ e
y
) 2t
= 2t
2
(t

t)

1
1
2

+ 2t

2
+ e
t
2

You can simplify this further is so desired, but I will not do it here. The answer can be
left in this form.
(b) Find
df
dx
for f(x, y) = ln x
3
+ 5y, with y(x) = e
4x
.
We use the chain rule again:
df
dx
=
f
x
dx
dx
+
f
y
dy
dx
=
f
x
+
f
y
dy
dx
=
3
x
+ 5(4e
4x
)
=
3
x
+ 20e
4x
(c) Find an expression for
dY
dt
for Y = 10KL

K2

L, with K and L both functions of t.


Chain rule:
dY
dt
=
Y
K
dK
dt
+
Y
L
dL
dt
=

10L
1
2

dK
dt
+

10K
1

dL
dt
1
2. Find the marginal rate of substitution (MRS) of y for x and the elasticity of substitution at
the point (x, y) = (1, 2) for the following functions:
(a) F(x, y) = 10x
2
+ 5y
2
.
First, we nd the MRS:
MRS =
F

x
(x, y)
F

y
(x, y)
=
20x
10y
= 2
x
y
MRS|
(x,y)=(1,2)
= 1
Now, in order to calculate the elasticity of substitution
yx
, we must nd
y
x
in terms of
the MRS and take the derivative:
y
x
=
2
MRS
d(y/x)
d(MRS)
=
2
MRS
2
Now, we can calculate the elasticity of substitution:

yx
=
MRS
y/x
d(y/x)
d(MRS)
=
MRS
2
2

2
MRS
2
= 1
So, the MRS is 1 and the elasticity of substitution is -1 at (x, y) = (1, 2)
(b) F(x, y) = xy + y
2
.
MRS =
F

x
(x, y)
F

y
(x, y)
=
y
x + 2y
=
y/x
1 + 2(y/x)
MRS|
(x,y)=(1,2)
=
2
5
2
Before calculating the MRS at (x, y) = (1, 2), we rewrite the MRS to be in terms of
y
x
,
making it easier to calculate the elasticity of substitution in the next step. First, we
calculate
y
x
in terms of the MRS:
MRS =
y/x
1 + 2(y/x)
MRS[1 + 2(y/x)] =
y
x
y
x
2MRS
y
x
= MRS
y
x
(1 2MRS) = MRS
y
x
=
MRS
1 2MRS
Now we can calculate the elasticity of substitution
yx
:

yx
=
MRS
y/x
d(y/x)
d(MRS)
=
MRS
y/x

1 2MRS MRS(2)
(1 2MRS)
2
=
MRS
y/x

1
(1 2MRS)
2

yx
|
(x,y)=(1,2)
=
2/5
2/1

1
1/25
= 5
The last two steps use the fact that the MRS is
2
5
, giving us an elasticity of substitution
of 5.
3

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