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Problem 3. Carol's risk preference is represented by the following expected utility formula: T, CI π...
3. Optimal Production under Uncertainty. Assume a firm owner is an expected utility maxmizer and has...
3. Optimal Production under Uncertainty. Assume a firm owner is an expected utility maxmizer and has NM utility function u(x) = ln(x) where x is final wealth. She has initial wealth of w, a constant unit cost of production, c = 5, and fixed costs of co= 2. She faces a maximum production capacity of y = 20. (a) The output price is uncertain: with probability p= .5 the price is 3 and otherwise the price is 9. What is...
3. Optimal Production under Uncertainty. Assume a firm owner is an expected utility maxmizer and has...
3. Optimal Production under Uncertainty. Assume a firm owner is an expected utility maxmizer and has VNM utility function u(x) = In () where x is final wealth. She has initial wealth of w, a constant unit cost of production, c = 5, and fixed costs of co = 2. She faces a maximum production capacity of y = 20. (a) The output price is uncertain: with probability p=.5 the price is 3 and otherwise the price is 9. What...
Lorelai's choice behavior can be represented by the utility function u(x1, 2) 0.9n(x)0.1x2. The prices of...
Lorelai's choice behavior can be represented by the utility function u(x1, 2) 0.9n(x)0.1x2. The prices of both xi and x2 are $5 and she has an income of $40. 1. What preference does this utility function represent? (Hint: the utility is function is not linear, but at least linear in good x2) 2. Drawinwg indifference curves: you can copy down the graph on your paper using econgraphs. Set the preferences and parameters accordingly as given in the question. Click on...
Lorelai's choice behavior can be represented by the utility function 11(xi, X2) = 0.91n(xi) + 0.1x2...
Lorelai's choice behavior can be represented by the utility function 11(xi, X2) = 0.91n(xi) + 0.1x2 The prices of both x and x2 are $5 and she has an income of $40. 1. What preference does this utility function represent? (Hint: the utility is function is not linear, but at least linear in good x2.) 2. Drawinwg indifference curves: you can copy down the graph on your paper using econgraphs. Set the preferences and parameters accordingly as given in the...
I. Zoe, who satisfies the axioms of expected utility, faces the following decision problem, where the...
I. Zoe, who satisfies the axioms of expected utility, faces the following decision problem, where the numbers are her von Neumann-Morgenstern utilities probability tt state-, s act (a) What action will she choose? Suppose that, before making her choice, Zoe is offered the chance to consult, for free, an expert. The expert will perform a test, which will consist in dipping a piece of paper in a special liquid. After a few minutes the paper will turn either red (which...
Question 2: Lorelai's choice behavior can be represented by the utility function u(x1, 2)0.9Inx)0.1x2 The prices...
Question 2: Lorelai's choice behavior can be represented by the utility function u(x1, 2)0.9Inx)0.1x2 The prices of both x1 and x2 are $5 and she has an income of $40. 1. What preference does this utility function represent? (Hint: the utility is function is not linear, 2. Drawinwg indifference curves: you can copy down the graph on your paper using econgraphs. Set but at least linear in good x2) the preferences and parameters accordingly as given in the question. Click...
Suppose the function u(x) = x0.5 , where x is consumption, represents your preference over gambles using an expected uti...
Suppose the function u(x) = x0.5 , where x is
consumption, represents your preference over gambles using an
expected utility function.
You have a probability 0.1 of getting consumption xB (bad state)
and a probability 0.9 of getting xG (good state).
An insurance company allows you to choose an insurance contract
(b, p), where b is the insurance benefit the company pays you if
the bad state occurs and p is the insurance premium you pay the
company regardless of...
Question 12 Suppose that a decision maker’s risk attitude toward monetary gains or losses x given...
Question 12 Suppose that a decision maker’s risk attitude toward monetary gains or losses x given by the utility function U(x) = (x+10,000)^0.5 If there is a 2.5% chance that the decision maker's car, valued at $5000, will be totaled during the next year, what is the most that she would be willing to pay each year for an insurance policy that completely covers the potential loss of her vehicle? Please round all answers (also intermediate results to 2 decimals)....
1. Consumer’s utility function is: U (X,Y) = 10X + Y. Consumer’s income M is 40...
1. Consumer’s utility function is: U (X,Y) = 10X + Y. Consumer’s income M is 40 euros, the price per unit of good X (i.e. Px ) is 5 euros and the price per unit of good Y (i.e. Py) is 1 euro. a) What is the marginal utility of good X (MUx) for the consumer? ( Answer: MUx = 10) b) What is the marginal utility of good Y (MUy) for the consumer? ( Answer: MUy = 1) c)...
3. Optimal Production under Uncertainty. Assume a firm owner is an expected utility maxmizer and has NM utility function u(x) = ln(x) where x is final wealth. She has initial wealth of w, a constant unit cost of production, c = 5, and fixed costs of co= 2. She faces a maximum production capacity of y = 20. (a) The output price is uncertain: with probability p= .5 the price is 3 and otherwise the price is 9. What is...
3. Optimal Production under Uncertainty. Assume a firm owner is an expected utility maxmizer and has VNM utility function u(x) = In () where x is final wealth. She has initial wealth of w, a constant unit cost of production, c = 5, and fixed costs of co = 2. She faces a maximum production capacity of y = 20. (a) The output price is uncertain: with probability p=.5 the price is 3 and otherwise the price is 9. What...
Lorelai's choice behavior can be represented by the utility function u(x1, 2) 0.9n(x)0.1x2. The prices of both xi and x2 are $5 and she has an income of $40. 1. What preference does this utility function represent? (Hint: the utility is function is not linear, but at least linear in good x2) 2. Drawinwg indifference curves: you can copy down the graph on your paper using econgraphs. Set the preferences and parameters accordingly as given in the question. Click on...
Lorelai's choice behavior can be represented by the utility function 11(xi, X2) = 0.91n(xi) + 0.1x2 The prices of both x and x2 are $5 and she has an income of $40. 1. What preference does this utility function represent? (Hint: the utility is function is not linear, but at least linear in good x2.) 2. Drawinwg indifference curves: you can copy down the graph on your paper using econgraphs. Set the preferences and parameters accordingly as given in the...
I. Zoe, who satisfies the axioms of expected utility, faces the following decision problem, where the numbers are her von Neumann-Morgenstern utilities probability tt state-, s act (a) What action will she choose? Suppose that, before making her choice, Zoe is offered the chance to consult, for free, an expert. The expert will perform a test, which will consist in dipping a piece of paper in a special liquid. After a few minutes the paper will turn either red (which...
Question 2: Lorelai's choice behavior can be represented by the utility function u(x1, 2)0.9Inx)0.1x2 The prices of both x1 and x2 are $5 and she has an income of $40. 1. What preference does this utility function represent? (Hint: the utility is function is not linear, 2. Drawinwg indifference curves: you can copy down the graph on your paper using econgraphs. Set but at least linear in good x2) the preferences and parameters accordingly as given in the question. Click...
Suppose the function u(x) = x0.5 , where x is
consumption, represents your preference over gambles using an
expected utility function.
You have a probability 0.1 of getting consumption xB (bad state)
and a probability 0.9 of getting xG (good state).
An insurance company allows you to choose an insurance contract
(b, p), where b is the insurance benefit the company pays you if
the bad state occurs and p is the insurance premium you pay the
company regardless of...
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