• MonashU
• ECC5650MicroTheory
• ProblemSet06

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latex error! exitcode was 2 (signal 0), transscript follows:

1. [JR 2.23] Consider the utility function,

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   1. What restrictions must be placed on parameters, a, b, and c for this function to display risk aversion?

   2. Over what domain of wealth can a quadratic VNM utility function be defined?

   3. Given the gamble

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      show that

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      and that

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      .

   4. Show that this function, satisfying the restrictions in part (a), cannot represent preferences that display decreasing absolute risk aversion.

2. Provide a proof that the CES utility function

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   actually exhibits constant elasticity of substitution and thus deserves its name.

3. [JR p.125] Consider the production function

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   1. Show that this function exhibts variable returns to scale;

   2. Find the output level

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      for which this function exhibits constant returns to scale.