Mastering ECON 290: Advanced Mock Final Exam Guide
School
Brock University**We aren't endorsed by this school
Course
ECON 290
Subject
Economics
Date
Dec 9, 2024
Pages
3
Uploaded by GeneralFlag7928
ECON 290 - Mock Final Exam (Advanced Version)Duration: 2 hours 30 minutesMarks: 40Instructions:- Answer all questions.- Show all calculations and provide clear explanations.- The exam includes problems of varying difficulty levels, inspired by your problem sets and lecturenotes.Question 1: Intertemporal Choice and Budget Constraints (6 Marks)A consumer lives for two periods with income m1 = $30,000 in period 1 and m2 = $40,000 in period2. The interest rate is 5%.a) Derive the consumer's intertemporal budget constraint.b) If the consumer saves $5,000 in period 1, calculate their consumption in both periods.c) Illustrate the consumer's intertemporal choice on a graph, labeling the budget line and feasibleconsumption points.Question 2: Utility Maximization with Constraints (7 Marks)Consider a consumer with the utility function U(x, y) = x^(0.5) * y^(0.5). The prices of goods X and Yare $4 and $2, respectively, and the consumer has a budget of $20.
a) Formulate the consumer's utility maximization problem and solve it using the Lagrangian method.b) Find the optimal bundle (x*, y*).c) Show graphically the budget constraint, indifference curve, and optimal bundle.Question 3: Returns to Scale and Firm Behavior (8 Marks)A firm has the production function Q = L^(0.3) * K^(0.7). The prices of labor and capital are $10 and$20 per unit, respectively.a) Verify whether the production function exhibits increasing, decreasing, or constant returns toscale.b) Using the cost minimization approach, determine the optimal combination of L and K to produceQ = 100.c) Discuss how returns to scale affect firm size and competitiveness in the market.Question 4: Choice Under Uncertainty (10 Marks)A decision-maker faces a gamble with outcomes $100,000 (probability 0.7) and $50,000 (probability0.3). Their utility function is U(W) = ln(W).a) Calculate the expected utility of the gamble.b) Find the certainty equivalent of the gamble.c) Illustrate the consumer's attitude towards risk using the utility function and a graph.Question 5: Satisficing in Decision-Making (9 Marks)
Explain the concept of satisficing with respect to consumer choice. Consider a consumer decidingbetween two options, where optimality is computationally intensive. Provide a practical example where satisficing leads toa reasonable outcome. Contrast this approach with utility maximization and discuss its implications in real-worlddecision-making.