$a{Q}_1?$

$c{Q}_1$ the optimal output for the scale SRATC ${?}_{(}1)?$

$d_1?$

$e{Q}_A,$ which scale should $it$ use $to$ maximise

profits?

Part $B.$

ECO$331$ Intermediate Microeconomics

Identify which $of$ the following production technologies are characterised $by$ Increasing, Constant $or$

Decreasing Returns $to$ Scale

$(a),Q=\sqrt[\phantom{2}]{K}+\sqrt[\phantom{2}]{L}$

$(b),Q=\sqrt[\phantom{2}]{KL}$

$(c),Q=K^2\sqrt[\phantom{2}]{L}$

$(d),Q=\sqrt[\phantom{2}]{K}L$

$(e)IfQ=\frac{A}{A-KL},$ where $A>KL,$ identify the relationship between A and $KL$ for $Qtobe$

characterised $by$ decreasing returns $to$ scale Question $2.A.2(40\%)$

Jenny currently makes $30,000$ a year $as$ a librarian. She $is$ considering a career change: For $a$

current expenditure $of9,000,$ she can become a florist. $If$ she makes that career change, her

earnings will rise $to35,000$ per year. Jenny has four years left $to$ work before retirement $(itis$

assumed that she gets paid once $at$ the end $of$ each year$).$

$A.If$ the interest rate $is10\%,$ calculate the net present value $of$ Jenny's investment $in$ flower

arrangement lessons

$B.$ Assuming that being a florist offers the same job satisfaction $as$ being a librarian, should Jenny

change career?

$C.$ Would Jenny choose differently $ifat$ the end $of$ her career $as$ a librarian she receives a lump$-$sum

bonus $of12,000?$

Question $2.B.3(40\%)$

Suppose that Sally's utility function $Uis$ given $byU=w^{0\mathrm{.}5},$ where $wis$ wealth. Sally has a wealth $of20$

and $is$ thinking $of$ buying a pleasure boat which would cost $10of$ her wealth. The probability that she

buys the boat $is20\%.$

$(a)$ Calculate Sally's expected value $of$ wealth

$(b)$ Calculate Sally's level $of$ utility $at$ the expected value $of$ wealth.

$(c)$ Calculate Sally's expected utility

$(d)Is$ Sally risk$-$averse?

$(e)$ What $is$ Sally's certainty equivalent?

$(f)$ What $is$ Sally's risk premium?

All sub$-$questions carry equal marks