Problem Set 3

ECON 3001A
Fall 2018

Updated: November 10, 2018

47. For each of the following functions, indicate at which point(s) the function is discontinu-
ous. (The domain is R in each case).
 
2x + 3 x < 1
(a) f (x) =
x+5 x≥1
1
(b) f (x) = x
1
(c) f (x) = (x−3)2
(x−2)
(d) f (x) = (x2 −x−2)

48. Suppose that a salesperson earns a basic monthly salary of $800 plus a commission rate is
15% and the possible bonuses are lump-sum amount of $1000 if her monthly sales exceed
$10,000 and a further lump-sum of $2,500 if her monthly sales exceed $15,000. Find the
function that relates sales to earnings for this salesperson and graph it. At which points is
the function discontinuous? Interpret the incentives created by this pay scheme? (Let S be
monthly sales and P be the salesperson’s pay.)
∆y
49. From the definition of the derivative introduced in class ( limx→0 ∆x
), find the derivative
for each of the following functions:

(a) y = f (x) = 3x − 5
(b) y = f (x) = 8x
(c) y = f (x) = 3x2

50. Suppose that a salesperson has the following contract relating monthly sales, S, to her
monthly pay, P. She is given a basic monthly amount of $600, regardless of her sales level.
On the first $10,000 of monthly sales she earns a 10% commission. On any additional
sales she earns a commission of 20%.

(a) Find and graph the function relating her pay to sales, P (S) , S ≥ 0
(b) Determine the point of non-differentiability of P (S)?

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 51. Find the marginal product functions for the Cobb-Douglas production function:
y = 10x1 1/2 x2 1/3 x3 1/4

52. Consider the market for cheese. Denote the quantity traded q and the price p. Supply of
cheese is determined by optimal firm behaviour and characterized by ps = q. Consumer
demand is pd = 16 − 9q + q 2 .

(a) Solve for the potential equilibria in this market. Illustrate with a diagram.
(b) Are all solutions found in part (a) ”reasonable”? Discuss briefly.

53. Given the function z = Ax1 a1 x2 a2 ...xn an , where x1 , x2 , ...xn > 0, and A, a1 , a2 , ..., an are
all constants with A positive. Compute dz.
54. Use Jacobian determinants to test the existence of functional dependence between the
paired functions:

(a) y1 = 3x21 + x2 and y2 = 9x41 + 6x21 (x2 + 4) + x2 (x2 + 8) + 12

(b) y1 = 3x21 + 2x22 and y2 = 5x1 + 1

55. Given the consumption function C = a + bY (with a > 0, 0 < b < 1)

(a) Find its marginal function and its average function.
(b) Find the income elasticity of consumption, and determine its sign, assuming Y > 0.
(c) Show that this consumption function is inelastic at all positive income levels.
56. Given Q = 100 − 2P + 0.002Y , where Q is quantity demanded, P is price, and Y is
income, and given P = 20 and Y = 5000, find the:

(a) Price elasticity of demand.

(b) Income elasticity of demand.

57. Find the total derivative dz/dt, given

(a) z = x2 − 8xy − y 3 , where x = 3t and y = 1 − t.
(b) z = f (x, y, t), where x = a + bt, and y = c + kt.
58. For each of the F (x, y, z) = 0 use the implicit-function rule to find dy/dx and dy/dz:
(a) F (x, y, z) = x2 y 3 + z 2 + xyz = 0
(b) F (x, y, z) = x3 y 2 + z 2 + 4xyz = 0
(c) F (x, y, z) = 3x2 y 3 + xz 2 y 2 + y 3 zx4 + y 2 z = 0
59. Consider the following national-income model:
y − c(y) − I(i) − G0 = 0
ky + L(i) − M0 = 0.
where 0 < c0 < 1, I 0 < 0 and L0 < 0.

Analyze the comparative statics of the model when money supply (M0 ) changes (monetary
policy), and when the government expenditure (G0 ) changes (fiscal policy).

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 60. Find an expression for dz in terms of dx and dy for the following:

(a) z = Axa + By b
(b) z = exu , where u = u(x, y).
(c) z = ln(x2 + y)

61. Consider a utility function u(x1 , x2 ) = x1 1/3 x2 2/3 .

(a) Find the differential du.

(b) An indifference curve is what is referred to as a level curve of the utility function,
which characterizes the relationship between x1 and x2 for a fixed level of utility.
In other words u(x1 , x2 ) = k, for a constant k, defines an implicit function x1 (x2 ).
Characterize the slope of the set of indifference curves using your answer from part
(a), by setting du = 0.
(c) Use the implicit function theorem to compute the slope of indifference curves. Com-
pare your answer to that of part (b).

62. The demand for coffee is given by:

Dc = 100 − 2pc + 0.5pt

and for tea:
Dt = 120 − pt + 0.75pc
where pc and pt are the prices of coffee and tea respectively. The respective supply func-
tions are:
Sc = 10 + pc + 5wc
St = 5 + 2pt + 2wt
where wc and wt are the indexes of weather conditions affecting production of coffee and
tea respectively.

(a) Interpret the supply and demand functions.

(b) Compute the comparative-static effects on equilibrium prices of changes in both of
the weather condition variables.

63. Find the expression for the point elasticity of demand  (with respect to own price) for the
demand function y = 200 − 5p.

64. Find the marginal product functions for the CES (constant elasticity of substitution) pro-
duction function:

y = 12[0.4x1 −1/2 + 0.6x2 −1/2 ]−2

65. For the function u(x1 , x2 ) = 5x1 + 3x2 :

(a) Find the total differential.

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 (b) Draw the level curve for ū = 120.

66. Compute all the first and the second derivatives of the function:

f (x1 , x2 , x3 ) = ax1 + x2 β x3 γ

and show that Young’s theorem applies.

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