(α= 7 and β=8)

Q1. Find the optimal input bundle, (L ◦ ,K ◦ ), when r = $α, w = $β, F(L,K) = L 2/4K 1/4 , and producing 500 outputs.

Q2. Total cost is −αy 2 +βy+100, and the price of the output is $10. Find the best output level, y ∗ .

Q3. When the supply of gasoline is decreased, and the demand of gasoline is also decreased. Then how the equilibrium (price and quantity) is changed? Explain it with a graph.

Q4. (a) Suppose a decrease in price from $10α to $5 causes an increase in Q D from 100β to 120. Calculate price elasticity of demand.

(b) Given the demand equation, P = 100-1/αQ, calculate the price elasticity of demand when P = $20. 2

Q5. Suppose TC=2(w 1/α +r 1/β )y. Find the optimal bundle, (L ◦ , K ◦ ).