A vector z in this space is interpreted as a production combination; positive components in z are interpreted as outputs and negative components as inputs.
(Note that the firm’**s** profit can be expressed as pz = Pk i=**1** p i z i where p ∈ R k ++ is a vector of prices.)

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(a) Show that the above data satisfy the Weak Axiom of revealed preference. (b) Show that this consumer’**s** behavior cannot be fully rationalized.
Hint: Assume there is some preference relation % that fully rationalizes the above data, and verify that % fails to satisfy transitivity.

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A function f (x) is homothetic if f (x) = g(h(x)) where g is a strictly increasing function and h is a function which is homogeneous of degree **1**. Suppose preferences can be represented by a homothetic utility function. Then, show the followings.
(a) The marginal rate of substitution between any two goods depends only on the ratio of the demands consumed. That is M RS ij is identical whenever x x j i takes

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3. Auction (14 points)
Suppose that a seller auctions one object to two buyers, = **1**, 2. The buyers submit bids simultaneously, and the buyer with higher bid receives the object. The loser pays nothing while the winner pays the average of the two bids b + b

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Reconsidered” American Economics Review, Vol.101: 399-410.
Abdulkadiroglu, Che and Yasuda (forthcoming), “Expanding ‘Choice’ in School Choice” American Economic Journal: Microeconomics.
Gale and Shapley (1962), “College Admissions and the Stability of Marriage” American Mathematical Monthly, Vol.69: **9**-15.

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(a) Derive all pure strategy Nash equilibria.
(b) Show that the following type of Nash equilibria does NOT exist: One firm chooses pure strategy M , and other two firms use mixed strategies.
(c) Derive a symmetric mixed strategy Nash equilibria. You may assume that each firm chooses M with probability p and E with probability **1** − p, then calculate an equilibrium probability, p.

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Solve the following problems in Snyder and Nicholson (11th):. 1.[r]

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(a) Show that if u(x **1** , x 2 ) and v(x **1** , x 2 ) are both homogeneous of degree r, then
**s** (x **1** , x 2 ) := u(x **1** , x 2 ) + v(x **1** , x 2 ) is also homogeneous of degree r.
(b) Show that if u(x **1** , x 2 ) and v(x **1** , x 2 ) are quasi-concave, then m(x **1** , x 2 ) :=
min{u(x **1** , x 2 ), v(x **1** , x 2 )} is also quasi-concave.

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【戦略】 個々**の**プレイヤーがとること**の**できる行動
【利得】 起こり得る行動**の**組み合わせに応じた満足度、効用
Q: ゲーム**の**解（予測）はどうやって与えられる？
A: 実はノイマン達は一般的な解を生み出せなかった…

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More on Roy’**s** Identity | もっとロア**の**恒等式
Roy’**s** identity says that the consumer’**s** Marshallian demand for good i is
simply the ratio of the partial derivatives of indirect utility with respect to p i
and ω after a sign change.

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2. Revealed Preference (10 points)
Consider the following choice problem. There are 4 feasible elements, and we denote the set of all elements as X = fa; b; c; dg. Suppose individual choice behaviors are described by two di¤erent choice functions, f **1** and f 2 .

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(a) If a consumer’**s** preference satisfies completeness and transitivity, her prefer- ence can be ALWAYS represented by some utility function.
(b) It is POSSIBLE that an expenditure function is a convex function of prices. (c) If the utility function is quasi-linear, the compensating variation is ALWAYS

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where ; > 0. Let w **1** ; w 2 > 0 be the prices for inputs x **1** and x 2 respectively.
Then, answer the following questions.
(a) Sketch the isoquant for this technology.
Hint: Isoquant is the combination of inputs that achieves a certain given level of output. (corresponds to “indi¤erence curve” in consumer theory.)

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(d) If the relative risk aversion of some risk averse decision maker is independent of her wealth, then her absolute risk aversion MUST be decreasing in wealth.. (e) The competitive equi[r]

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Suppose that the decision maker’**s** preferences under uncertainty are described by the vNM utility function, u(x) = √ x.
(a) Is the decision maker risk-averse, risk-neutral, or risk-loving? Explain why. (b) Calculate the absolute risk aversion and the relative risk aversion, respectively.

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(a) Suppose % is represented by utility function u(·). Then, u(·) is quasi-concave IF AND ONLY IF % is convex.
(b) Marshallian demand function is ALWAYS weakly decreasing in its own price. (c) Lagrange’**s** method ALWAYS derives optimal solutions for any optimization

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(b) If consumer’**s** choice satis…es the weak axiom of revealed preferences, we can always construct a utility function which is consistent with such choice behav- iour.
(c) If a consumer problem has a solution, then it must be unique whenever the consumer’**s** preference relation is convex.

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is increasing in x **1** , the marginal
product of x 2 must be negative.
(c) Let (x, p) be a competitive equilibrium. Suppose u i (y i ) > u i (x i ) for some
bundle y i . Then show that p · y i > p · x i . Does this depend on whether utility

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vNM Utility Function (**1**)
Note the function U is a utility function representing the preferences on L(S) while v is a utility function defined over S, which is the building block for the construction of U (p). We refer to v as a vNM (Von Neumann-Morgenstern) utility function.

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Explain.
(b) Show that any risk averse decision maker whose preference satisfies indepen- dence axiom must prefer L 2 to L 3 .
3. Question 3 (4 points) Suppose a monopolist with constant marginal costs prac- tices third-degree price discrimination. Group A’**s** elasticity of demand is ǫ A and

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