1. If wH=100 and wL=36 and U(w)=w^1/2. Further, let the reservation utility be 7. (a) What is the minimum probability for which the wage earner accepts the contract? (b)Let p=3/4. What is the maximum cost of effort for which the tenant accepts the contract?
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1. If wH=100 and wL=36 and U(w)=w^1/2. Further, let the reservation utility be 7.
(a) What is the minimum probability for which the wage earner accepts the contract?
(b)Let p=3/4. What is the maximum cost of effort for which the tenant accepts the contract?
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- Both jobs provide base salary and commissions. Base salary is garunteed But the probability of getting the commissions is 50% every month Job 1 base salary is 1k but commission is 3k Job 2 base salary is 2k but commission is 1k A) Calculate the expected value for both jobs. b.whats the standard deviation for both jobs. C) Use utility-income diagram to show if the applicant is risk-averse, which job should he accept and why.Consider a gamble/lottery in which a coin is tossed rapidly until a tail comes up. 2m rupee is given if the tail comes up at the mth toss. Let the individual be risk neutral, having u(x) = x where x is the amount of winning. Find the expected utility from the lottery.Consider the following example. A risk-neutral worker can choose high or low effort. The worker's outside option is 0. The manager cannot observe the worker's action, but the manager can observe the realized revenue for the firm (either $100 or $200). The probability of each revenue depends on the worker's effort: Low effort: cost of effort : $0 probability of low revenue ($100): 75% probability of high revenue ($200) : 25% High effort: cost of effort : $11 probability of low revenue ($100): 25% probability of high revenue ($200) : 75% The manager offers a contract which gives the worker a flat wage of $10 and a bonus of $20 if revenue is high. Given this payment scheme, the worker will put in ✓effort. The contract (is/is not) ✓incentive compatible. The firm's expected profit is $ The firm is considering an investment that would increase worker morale. By making work more enjoyable, the program would reduce the worker's cost of effort from $11 to $9. If it costs the firm $20 to…
- A client (the principal) is trying to determine the best possible contract to enter into with her favoring the client is x and the probability of winning is 8. lawyer (the agent). The principal makes the following assumptions: the dollar amount of a judgment The lawyer has offered to () work for a fixed fee of F. (i) pay the client a fixed fee of F and keep the remainder of the judgment, and (ii) work for a contingent fee or a share of the contract with t lawyer's share being a If the principal is highly risk-averse and is interested in production efficiency she will choose option i option i option i5. Shift-in-charge Nazar Al Rushdy: Nazar is pessimistic about the market price. What is your guidance for Nazar? The decision to employ decision trees in crucial situations has been taken by Salem Al Harthi, the plant manager. The table below presents data on demand for a duration of 6 hours along with their respective probabilities. The first row of the table provides the probability of demand for the initial three hours when a leak occurs, denoted in parentheses. Subsequently, the following three rows indicate the probabilities of high, medium, and low demand for the succeeding three hours. To illustrate, if the initial 3-hour market price was low, the probabilities of high demand, medium demand, and low demand in the next three hours are 0.2, 0.3, and 0.5, respectively. Market price High Market price Medium Initial 3-hrs (0.2) Initial 3-hrs (0.5) Market price Low Initial 3-hrs (0.3) High demand (next (0.5) (0.4) (0.2) 3 hrs) Medium demand (0.3) (0.2) (0.3) (next 3 hours) Low demand…Question 1) An expected utility maximiser owns a car worth £60000 and has a bank account with £20000. The money in the bank is safe, but there is a 50%50% probability that the car will be stolen. The utility of wealth for the agent is ?(?)=ln(?)u(y)=ln(y) and they have no other assets. How much the individual would be willing to pay for full car insurance, i.e., where the indemnity is equal to the value of the car? Question 2) Consider the setup from Question 1. A risk-neutral insurance company is willing to insure the car at the premium of π=£2/3 for every one pound of coverage. How much insurance coverage will the individual choose to buy? Question 3)Consider the setup from Questions 1 and 2. How much profits, in expectation, does the insurance company earn on insuring the individual? QUESTION 4) ONLY ANSWER THIS QUESTION
- Alice would be willing to pay up to £15 for a gamble giving a 35% chance of £50 and a 65% chance of £10. (a) What is the expected value of this gamble? Represent Alice's preference over risk in a large, suitably labelled graph. The graph should include Alice's expected utility from the gamble described above (b) Represent on the same graph the maximum amount that Alice would pay to remove the risk from this gamble.Economics A risk neutral worker has a reservation wage of 500 and a cost of high effort of 187. Depending on the effort put by the worker and some random luck factor, the employer will earn 2500 (if the worker puts high effort and he gets lucky), or 1500 (if the worker puts high effort and he gets unlucky OR if the worker puts low effort and he gets lucky), or 500 (if the worker puts low effort and he gets unlucky). Assume the worker gets lucky with probability 0.4. The employer wants to incentivize the worker to put high effort and decides to pay the worker an incentive contract comprised of a fixed wage of $500 plus a bonus paid only if the profit of 2500 is realized. Calculate the optimal such bonus that the employer should pay, if it wants to incentivize the worker and maximize its profits at the same time. Round your answer to 2 decimals, if needed.Q) Suppose that utility for a worker is u(w)=w^.5. If the wage (w) offered is $64, there is a 50% chance of being fired, and switching costs are $28. What is the expected utility for the worker? Explain it early
- Q) Suppose that utility for a worker is u(w)=w^.5. If the wage (w) offered is $64, there is a 50% chance of being fired, and switching costs are $28. What is the expected utility for the worker? Solve it early I upvote.Adam is offered a performance based wage that will be equal to $4.200 with probability 1/3 or equal to $3,600, with probability 2/3. Adam says that getting $3,500 for certain would be as good as being offered that random wage. Which, of the following sentences, is true? The risk premium he associates with this wage offer is $100. The risk premium he associates with this wage offer is $300. None of the other answers are correct. OThe risk premium he associates with this wage offer is $700. The risk premium he associates with this wage offer is $400.A risk-neutral plaintiff in a lawsuit must decide whether to settle a claim or go to trial. The defendants offer $50,000 to settle now. If the plaintiff does not settle, the plaintiff believes that the probability of winning at trial is 50% if the plaintiff wins, the amount awarded to the plaintiff is X Will the plaintif settle if x is $62,500? What if X-$250,000? What is the critical value of X that would make the plaintiff indifferent between setting and going to trial? it the plaintiff were risk averse instead of risk neutral, would this critical value of X be higher or lower? If the amount to be awarded at trial with a win (X) were $62,500, then the plaintiff would settle If the amount to be awarded at trial with a win (X) were $250,000, then the plaintiff would not settle The critical value of X that would make the plaintiff indifferent between settling and going to trial is $ (Enter your response using rounded to wo decimal places)
