SECOND MID TERM EXAMINATION
ADEC 7420- Spring 2020
LAST NAME: ___________________________ FIRST NAME: ________________________
I pledge on my honor that I have not given or received any unauthorized assistance on this
examination.
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BEGIN BY FOLLOWING THESE INSTRUCTIONS:
• This is a second portion of the midterm. Once you are done writing your answer please scan and
upload your responses.
• Ideally, you should submit your responses as scanned images instead of taking pictures. Also,
submit them as one file if you can.
• In order to receive full credit, explain your answers when necessary and remember to label your
graphs appropriately.
• You get 10 points for being awesome!!
This is a take Home Exam. You can take as much time as you need to finish the exam. But
suggested time is a maximum of 1 hour and 30 minutes.
1) Think about two distinct concepts that you have learned in this class. Explain how these
concepts will help you in your own work. Try to think of real-world examples for your own
unique situation. (15 points)
2) For a consumer who only consumes two goods X and Y. If the income elasticity of demand for
good X is 0.7 and the own price elasticity of Marshallian demand is 0.4. Calculate the cross-price
elasticity of demand for X with respect to Y. Explain. (8 points)
3) Are the following valid production functions? Explain? (8 points)
a) q = 7(L1/2 + K3/4)
b) q = L3/K2
4) A firm has the following production function: (14 points)
q = l(3lnL + 4lnK)
a) Does this production function have constant returns to scale. Explain.
b) Determine the MRTS.
c) What is the elasticity of substitution for this function.
5) Ajax, Inc. assembles gadgets. Suppose, Ajax’s production function is given by Q = LK.
a) Derive Ajax’s contingent input demand functions for L and K. (10 points)
b) Derive Ajax’s cost function. (5 points)
c) Verify Shephard’s lemma. (5 points)
d) Suppose you know that when w = $4 and r = $2, the firm’s total cost is $160. How much is
Ajax’s output? (5 points)
e) If Ajax wants to produce the same amount of gadgets as in (d) but the amount of K is fixed
at " . Derive, Ajax’s short run contingent input demand function for labor and its short run
cost function. (10 points)
6) If the average cost curve is increasing, must the marginal cost curve lie above the average cost
curve? If the marginal cost curve is increasing, must the marginal cost curve lie above the average
cost curve? Why or why not? (10 points)