ECO-201: Intermediate Microeconomics

Section 2
Quiz 5
Time Allowed: 75 minutes
Maximum Marks: 45 marks

Question 1:

Suppose q = 2L2/5K3/5

a) Find the Marginal Product of Labor. (3 marks)

b) Find the Marginal Product of Capital. (3 marks)
c) Find MRTS. (2 marks)
d) Set up the Lagrangian to solve the cost minimization problem for a producer who
wants to produce output level q. (10 marks)

Question 2:

Suppose q = 5L1/3K2/3. If the producer wants to maximise his profit,

a) Find the optimal combination of labor and capital that he should use. (10 marks)
b) For this optimal combination, find the level of output. (3 marks)
c) Find the maximum profit that the producer can make. (2 marks)

Question 3:

Suppose the utility function is U (x1, x2) = x1x2, and the budget constraint is given by
p1x1+p2x2=m.

a) Set up the Lagrangian to solve the utility maximization problem. Find the Marshallian
demands for x1 and x2. Also write the indirect utility function. (8 marks)
b) Set up the Lagrangian to solve the Expenditure Minimization problem. Find the
Hicksian demands for x1 and x2. Also write the minimized expenditure function. (7
marks)