Yilin Zhang

Fin500 Business Mathematics

Fall 2015

Final Exam Practice Questions

The questions with * (namely, Q19 & 20) are required only if we have time to
cover the topics on covariance & independent random variables in the last
lecture.

1. If
1

A) 35

+
= 0 is

=2 +3 ,

, then

when

B) 17
C) 8
D) 5
E) 1

+2

2. if
A)

= 1, then

B)

C) 4
D)

(1 2

)/

E) None of the above

3. For
+
2, = 1 is
A) -3/2

= 6 , the partial derivative

evaluated at

= 1,

B) -5/2
C) -1
D) -3/5
E) -1/2

4. A monotonic transformation is a transformation that preserves the monotonicity of the

original function, i.e. it is a strictly increasing function of the original function. Given
1

Yilin Zhang

Fin500 Business Mathematics

Fall 2015

the utility function =

, show that both and the monotonic transformation
= ln( ) = ln(
) have the same MRS. (Hint:
=
/
)

5. Determine the critical points of ( , ) = 3 + 4 2 + 8 and also determine

by the SOC whether each point corresponds to a relative maximum, to a relative
minimum, to neither, or whether the test gives no information.

6.

a) Find

=2

+1

b) Find
c) Are the results you get in part a) and b) the same?

7. When is close to 1, the value of ( ) = ln( ) can be approximated by ( 1).

Use Taylor expansion to show why this is the case.
8. Use 3rd order Taylor expansion (i.e. expand to term) at
approximate value of 2 .

= 1 to find the

9. Suppose that a union has a fixed labor supply ( ) to sell, that unemployed workers
are paid unemployment insurance at $ per worker, and that the union wishes to
maximize the sum of the wage bill plus the unemployment compensation =
( )
( ) , where is the wage per worker and ( ) is the labor
demand function with ( ) < 0. Show that if increases, then the union should
set a higher .
(Hint:

is endogenous here and

is exogenous.)

10. Suppose that the output q of a firm depends on the quantities of

and
employs as inputs. Its output level is determined by the production function
= 20

+ 25

+5

that it

a) Write down the firms profit function when the price of q is p and the factor prices
are
per unit, respectively

b) Find the levels of

which maximizes the firms profits

c) Find

and

d) Verify that your solution to b) satisfies the second order condition for maximum
e) Is profit function concave?
2

Yilin Zhang

Fin500 Business Mathematics

Fall 2015

11. The production function for a companys product is = 100 + 50 , where

is the output that results from units of labor and units of capital. The unit cost of
labor and capital are 6 and 3, respectively. If the company wants the total cost of inputs
to be 30, determine the greatest output possible subject to this budget constraint.

12. Four cards are to be dealt successively at random and without replacement from
an ordinary deck of 52 playing cards. What is the probability of receiving a heart,
a diamond, a spade, and a club in this order? Explain.

13. The Chevalier de Mere bets he can get a "6" in four rolls of a fair die. If he gets a
"6" in four throws, you give him 5 dollars. If he doesnt, he gives you 5 dollars.
Do you want to play? Explain.

14. If the sample space is

( )

, and if ( ) = 0.8 and ( ) = 0.5, find

15. The U.S. Bureau of Labor Statistics publishes data on the benefits offered by small
companies to their employees. Only 42% offer retirement plans while 61% offer life
insurance. Suppose 33% offer both retirement plans and life insurance as benefits. If a
small company is randomly selected, determine the following probabilities.
a) The company offers a retirement plan given that they offer life insurance.
b) The company offers life insurance given that they offer a retirement plan.
c) The company offers life insurance or a retirement plan.
d) The company does not offer life insurance if it is known that they offer a retirement
plan.
e) The company offers a retirement plan and does not offer life insurance.

( + 1)
= 1, 2, , 5 is the PMF for a random variable .
0

a) Find the appropriate value for the constant .

16. Suppose

( )=

b) What is the probability (0 <

17. Let the PMF ( ) be positive at

a) If (0) = , find (

3)?

= 1, 0, 1 and zero elsewhere.

b) If (0) = and if ( ) = , determine (1) and (1)

Yilin Zhang

Fin500 Business Mathematics

Fall 2015

18. Let be a random variable such that [( ) ] exists for all real number .
Show that [( ) ] is at the minimum when = ( ).
19. *Let
and
be two random variables. If the mean values of
and
satisfy ( ) = 0, ( ) = , where
is a non-negative constant; and the
( , )=0
covariance between the two is
a) What is the variance of , i.e.
b) What is (

) equal to?

( )?

20. * Which of the following are true? You dont have to explain, just answer T/F.
a)
b)

[ ( )] = ( [ ])

c)
d)

)=

e) If
[ (

)=

( )

( , )

( , ), ,

and
are independent, and
) ( )] = ( ( )) ( ( ))

( , ) = 0 , then
f) If
independent.
g) If
( (

are independent, then

)) for all ,

( (

))

( (

)) exist, then

have 0 co-movement and hence they are

[ (

)+ (

)] =

) +