Question 5 Millicent's utility function is U(w) producing firm that will be worth GH100 or 0 Ghana cedis next year with equal probability. W0.5, where W is her wealth. She owns a “pure water" %3D a. Suppose her firm is the only asset she has. What is the lowest price at which she will agree to sell her bakery? (Hint: price=amount that will give her the same expected utility) b. Assume that she has GH200 safely stored under her mattress, find the new lowest price at which she will agree to sell her "pure water" producing firm c. From your answers in parts (a) and (b), what is the relationship between her wealth and her degree of risk aversion?

Question 5 Millicent's utility function is U(w) producing firm that will be worth GH100 or 0 Ghana cedis next year with equal probability. W0.5, where W is her wealth. She owns a “pure water" %3D a. Suppose her firm is the only asset she has. What is the lowest price at which she will agree to sell her bakery? (Hint: price=amount that will give her the same expected utility) b. Assume that she has GH200 safely stored under her mattress, find the new lowest price at which she will agree to sell her "pure water" producing firm c. From your answers in parts (a) and (b), what is the relationship between her wealth and her degree of risk aversion?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.6P

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