Q1. You have $2000 to spend on entertainment this year. The price of a day trip (T) is $40 and the price of pizza and a movie (M) is $ 20. Suppose that your utility function is T1/3 and M2/3. (a) What combination of T and M will you choose? (b) Suppose that the price of day trip rises to $80. How will this change your decision making?
Q2. Consider the following regression model:
1/yi = b1+b2(1/xi)+ui
(a) Is this a linear regression model?
(b) How would you estimate this model?
(c) What will be the behaviour of Y as X tends to infinity
(d) Give an example where such a model will be appropriate