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The assignment for Intermediate Microeconomics includes questions on the diminishing slope of indifference curves, utility functions, and demand functions. It also covers topics such as Marshallian and Hicksian demand functions, Slutsky decomposition, and a production function for wheelbarrows. Students are required to analyze utility maximization, calculate demand functions, and determine production outputs based on given parameters.

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2 views2 pages

Previous Assignment Resource

The assignment for Intermediate Microeconomics includes questions on the diminishing slope of indifference curves, utility functions, and demand functions. It also covers topics such as Marshallian and Hicksian demand functions, Slutsky decomposition, and a production function for wheelbarrows. Students are required to analyze utility maximization, calculate demand functions, and determine production outputs based on given parameters.

Uploaded by

nkhataprecious99
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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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ASSIGNMENT

COURSE TITLE: Intermediate Microeconomics

COURSE CODE: AAE 311

DUE DATE 28th NOVEMBER, 2023

QUESTION ONE

a) The slope of indifference (marginal rate of substitution-MRS) curves


diminishes. Explain. 5 marks

b) For the utility functions presented below, determine whether they have
convex indifference curves or not.

i. 𝑈(𝑥, 𝑦) = 3𝑥 + 𝑦 5 marks

ii. 𝑈(𝑥, 𝑦) = √𝑥 ∗ 𝑦 5 marks


𝑥𝑦
iii. 𝑈(𝑥, 𝑦) = 5 marks
𝑥+𝑦

QUESTION TWO

Each day Paul, who is in third grade, eats lunch at school. He likes only Twinkies
(t) and soda (s), and these provide him a utility of

I)If Twinkies cost $0.10 each and soda costs $0.25 per cup, how should Paul
spend the $1 his mother gives him in order to maximize his utility? 10 marks
ii) Calculate maximum utility 10 marks
QUESTION THREE

a) Explain the meaning of the following statement “Demand functions are


homogeneous of degree 0 in all prices and income” 5 marks
b) Discuss the difference between the Marshallian(uncompensated) demand
function and Hicksian (compensated) demand function. 5 marks
c) What is the significance of Slutsky decomposition? 5 marks
d) Assume utility is given by
Utility= 𝑈(𝑥, ) = 𝑥 0.7 𝑦 0.3

i. Calculate the uncompensated (Marshallian) demand functions for x and y


for any 𝑝𝑥 𝑝𝑦 and 𝐼 15 marks
ii. Suppose the price of x is $5, y is $10 and income is $100 how much of x and
y will be demanded. 10 marks

QUESTION FOUR

Suppose the production function of wheelbarrows is given by

𝑞 = 𝑘𝑙 − 0.8𝑘 2 − 0.2𝑙 2

where q represents the annual quantity of wheelbarrows produced, k represents


annual capital input, and l represents annual labour input. Assuming k = 10

a) Find the expression for average physical product (AP) and marginal physical
product (MP) 10 marks
b) At what level of labour input is output (q) maximised? 10 marks

THE END

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