ECON 701 Midterm: Micro I prelim August 2017
Document Summary
This exam has four questions and is worth 100 points. Answer each question in a separate exam book. If you need to make additional assumptions, state them clearly. Good luck: (25 pts) suppose a locally nonsatiated utility function u : rn. R gives rise to a demand function x(p; y) = (x1(p; y); : : : ; xn(p; y)) de(cid:133)ned on rn+1. ++ (p is the price vector, y is income). Now assume mr. 1 satis(cid:133)es the expected utility hypothesis, and his bernoulli utility function is u1: ms. 2 similarly has a bernoulli utility function u2: both functions are twice di erentiable, with u0. 2(x) > 0 for all x 2 r: let ai(x) denote the coe cient of absolute risk aversion of ui; and assume a1(x) > a2(x) for all x 2 r: 1(x) > 0 and u0 (b) (10 pts) show that there exists a strictly concave increasing function h : u2(r) !
