1. (2 points) Consider two demand functions that describe the relationship between the price of a cup of coffee, and the quantity of cups, Q. Which demand is more elastic? Explain why. P=100-5Q P=300-6Q
2. (2 points) Based on the IIT index, which sector from the table below has the highest share of intra-industry trade?
Exports Imports
Sector A $3,000 $12,000
Sector B $25,000 $15,000
Sector C $11,000 $14,000
3. (4 points) Based on the information below about the production structure, explain whether the technology used in each part demonstrates constant returns to scale (CRS) or increasing returns to scale (IRS) property.
a. The labor cost of production of Q units of a good is given by C(Q) = 12Q
b. The marginal labor cost of production of Q units of a good is 8, while the fixed cost of producing Q units is 20.
c. To produce a good, one needs to use capital K and labor L. The quantity Q produced using L units of labor and K units of capital is given by Q = 38L^0.4K^0.6
d. To produce a good, one needs to use capital K, labor L, and electricity E. The quantity Q produced using L units of labor, K units of capital, E units of electricity, and C units of coal is given by Q=25(3L)(9K)^0.4(0.4E)(0.6C)^0.2
4. (2 points) Of three products, milk, meat, and cheese, which do you expect to have a higher index of intra-industry trade? Why?
