1. a. What is Labor Demand

b. Distinguish between an Isoquant Curve and an Isocost Curve.

c.Discuss the determinants of Price Elasticity of Demand.

d.Discuss the Marshall's Rules of Derived Demand.

A life assurance company is examining the force of mortality, /,. of a particular group of policyholders. It is thought that it is related to the age, x, of the policyholders by the formula: H, = Bc* It is decided to analyse this assumption by using the linear regression model: Y, = a + Bx; + 6; where &, ~ N(0,o') are independently distributed The summary results for eight ages were as follows: Age, X 30 32 34 36 38 40 42 44 Force of mortality, 5.84 6.10 6.48 7.05 7.87 9.03 10.56 12.66 Ux (x107) In /, (3 s.f.) -7.45 -7.40 -7.34 -7.26 -7.15 -7.01 -6.85 -6.67 [x, = 296 [ x, = 11,120 [In/,, =-57.129 _ (linux, )? = 408.50 Ex, In /, =-2,104.5 (i) (a) Apply a transformation to the original formula, #, = Be*, to make it suitable for analysis by linear regression. Hence, write down expressions for Y, a and B in terms of /, , B and c. (b) Plot a graph of In /, against the age of the policyholder, x. Hence comment on the suitability of the regression model and state how this supports your transformation in part (a). [4] (ii) Use the data to obtain least squares estimates of B and c in the original formula. [3] (iii) (a) Calculate the coefficient of determination between In /, and x. Hence comment on the fit of the model to the data. (b) Complete the table of residuals and use them to comment on the fit. [5] Age, X 30 32 34 36 38 40 42 44 Residual, e; 0.08 -0.03 -0.06 0.02 0.09 (iv) Calculate a 95% confidence interval for the mean predicted response In //35 and hence obtain a 95% confidence interval for the mean predicted value of //35. [4] [Total 16]A woman purchased a government bond on 1 January 2000. The bond pays coupons of 6% pa six monthly in arrears on 30 June and 31 December. The bond is due to be redeemed at 105% at the end of the year 2010. The woman expects to achieve a net yield of 5% pa effective interest on her investment. She pays income tax at the rate of 23% on 1 April for any coupon payments received in the previous year (1 April to 31 March). She also pays capital gains tax on that date at the rate of 40% on any capital gains she realised in the previous year. Calculate the price she paid for the bond. [7]