Question

Answer four of the following. In each case answer True, False or Uncertain and explain your answer. Limit each answer to one page. 1. (a) A firm has a technology that relies on only one input (call it x). The output of the firm (call it y) increases as you increase x but at a diminishing rate. Based only on the information provided, y-ln(x) would be a valid representation of this firms production function. A new virus has just been discovered with the following property: each day every person with the virus passes it onto to 2 new healthy people, before dying. If left unchecked then after 30 days over 1billion people will have been infected by the virus (b) (c) A business owner is thinking of investing in a new advertising campaign. The campaign will cost 50,000 and must be paid for in full today. After one year however, sales will increase by 25,000 and will increase by a further 30,000 at the end of the second year. The campaign will have no effect after that. Assume that the interest rate is 10% compounded annually. The business owner should go ahead with the new adverts Suppose the amount of cigarettes an individual smokes today (C) is given by the relationship C-f(P,S) where P is (d) the price of cigarettes and S is the stock of cigarettes, smoked in the past. Suppose 0. This means that neither the price of cigarettes or the stock of cigarettes smoked in the past has any effect on today's consumption. OPEs (e) A risk loving individual loves risk so much that they will agree to participate in any lottery that is offered to them.

Answer 1

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