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DEPARTMENT OF ECONOMICS SAN JOSE STATE UNIVERSITY MASTER’S COMPREHENSIVE EXAMINATION DECEMBER 2, 2011 6:00 P.M. TO 9:30 P.M. PROCTOR: J. HUMMEL INSTRUCTIONS: 1. Answer ONLY the specified number of questions from the options provided in each section. Do not answer more than the required number of questions. Each section takes one hour. 2. Your answers must be on the paper provided. No more than one answer per page. Do not answer two questions on the same sheet of paper. 3. If you use more than one sheet of paper for a question, write “Page 1 of 2” and “Page 2 of 2.” 4. Write ONLY on one side of each sheet. Use only pen. Answers in pencil will be disqualified. 5. Write ------ END ----- at the end of each answer. 6. Write your exam identification number in the upper right-hand corner of each sheet of paper. 7. Write the question number in the upper right-hand corner of each sheet of paper. Section 1: Microeconomic Theory—Answer Any Two Questions. 1A. Lydia spends all of her income on two goods: cokes and smokes. Suppose cokes cost $2/bottle and smokes are $0.50 each. For each coke she buys, she gets one for free: a. Draw the budget constraint if she spends $6 per day on these 2 goods. b. Determine the combinations of cokes and smokes that maximize utility if her utility function is specified as U(cokes, smokes) = C1S2. 1B. Suppose the market demand for cokes is specified as Qd = 900/P and the supply schedule is specified as Qs = P: a. Solve for the market equilibrium price and quantity where Qs = Qd. b. Assume a tax of $11/unit is imposed on sellers. Solve for the new P-Q equilibrium. (Hint aQ2 + bQ + c = 0 is solved as Q = [-b ± sqrt(b2 – 4ac)]/2a, and sqrt(3721) = 61. c. Determine the buyer and seller burden of the tax? Explain. (over) -1- DEPARTMENT OF ECONOMICS SAN JOSE STATE UNIVERSITY MASTER’S COMPREHENSIVE EXAMINATION DECEMBER 2, 2011 6:00 P.M. TO 9:30 P.M. PROCTOR: J. HUMMEL 1C. Given a production function Q = f (K, L) = K2L: a. Show the total differential of Q(dQ) in terms of dK and dL. b. Explain the economic meaning of dQ and every term in the dQ equation. c. Derive the first order partial derivatives of Q with respect to K and L, that is fk and fL. d. Derive all the second order partial derivatives of Q with respect to K and L. e. Use the result in d. to explain whether K and L are experiencing the Law of Diminishing Marginal Returns. f. Use the result in d. to explain how K and L are related. -2-