Q: Question 1 Maria spends all of her income of $2,000 on food (F) and clothing (C). The prices per…
A: M spends all her income on food and clothing. M=$2,000PF=$5PC=$20
Q: Show that a decision maker who has a linear utilityfunction will rank two lotteries according to…
A: In decision theory, the expected value of an action is calculated by the probability of that outcome…
Q: QUI If the budget equation is the following 19594 x₁ + 8525 x2 = 10269. What is the maximum amount…
A: To find the maximum amount of x1that a consumer can buy given the budget constraint equation
Q: Gary likes to gamble. Donna offers to bet him $31 on the outcome of a boat race. If Gary's boat…
A: Not taking the gamble gives the $80 as an utility to gary.
Q: PLS ANS 7 URGENT H = ($100, 0.4; $200, 0.6) K = ($120,p, $300, 1- p) 6. EV(H) =EV(K) What…
A: Given: Prospect H = ($100, 0.4; $200, 0.6) K = ($120,p, $300, 1-p) Carol utility wealth function-…
Q: Leo owns one share of Anteras, a semiconductor chip company which may have to recall millions of…
A: The stock price is the current value of stock for buyers and sellers.
Q: V*(p1, p2, 1) = O True O False P₁ P2 1² is a valid indirect utility function.
A: The indirect utility function describes the maximum utility that a consumer can obtain from a given…
Q: Max is thinking of starting a pinball palace near a large Melbourne university. His utility is given…
A: The satisfaction derived by an individual when he/she consumes a commodity or avails a service is…
Q: (a) Is Bill risk-averse, risk-loving, or risk-neutral? Explain. (b) If Bill could buy insurance to…
A: We need to look at Bill's utility function and his response to risk to establish if he is…
Q: a. Suppose that Will's preferences are Cobb-Douglas U(h, a) = hªa®, so his de- mand functions given…
A: There is two goods, i.e., h and a h* = (α I / Ph) --------> Demand function of good h and a* =…
Q: 2. Alice believes that her car would cost £12500 to replace if it was stolen or damaged. Based on…
A: The cost of car is The probability of the car being stolen or damaged is 15%. The user has in the…
Q: A household has initial wealth of $102,400. Out of this, $24,000 is in the form of valuables that…
A: Utility function : v(W) = W1/2 Initial Wealth =102,400 Potential loss = 24000 Probability of loss =…
Q: A farmer believes there is a 50-50 chance that the next growing season will be abnormally rainy. His…
A: The following problem has been solved as follows:
Q: 9. What type of risk preferences does John have? Mae owns an insurance company in a nearby town and…
A: Given value of wealth = 225 Utility function = 5 √C Income from planting corn:- 675 with p=0.7…
Q: QUESTION 5 A consumer has utility u (1)=√1 and income $1,600. The cost of going to the doctor is…
A: Utility function can be defined as the measure of welfare or satisfaction for any consumer as the…
Q: The vending machine in Katherine's office building offers cans of pop and candies. Katherine's…
A: Answer: Given, Utility function: U=3PC Price of pop PP=$1Price of Candy PC=$0.5Total income M=$10…
Q: Suppose you have a house worth $200,000 (wealth). Your utility of wealth is given by U(w) = ln(w).…
A: Answer: Given, Utility function: Uw=Lnw (1). The formula for expected wealth is given below:…
Q: 5. You are a risk-averse decision maker with a utility function U(1) = VI, where I denotes your…
A: Risk premium is defined as the maximum amount that an individual investor desires to pay to…
Q: Billy's income is equal to / =100 and his utility function is U = 12, There is a 10% chance that ne…
A: Income = 100 Utility function = I2 Probability of accident = 10% = 0.10 Damage cost = 70
Q: liver takes $2500 with him to a camp and there is 50% chance he will lose $900 on his way. Suppose…
A: The utility function explains relationship between utility and goods or services that are consumed.
Q: Now, imagine that Port Chester decides to crack down on motorists who park illegally by increasing…
A: The opportunity cost is time spent evaluating and that money to spend on something else. A farmer…
Q: c. Suppose the government imposes a 25 percent tax on accounting profits. This tax is levied only if…
A: (c) In lower revenue case Total cost = $1,50,000+70,000+30,000 = $2,50,000 Lower…
Q: A pirate is about to set sail on a 2-period journey (trip). He has 100 bags of barley (food). He…
A:
Q: Suppose 1.250 raffle tickets are being sold for $5 each. One ticket will be chosen to receive a cash…
A: The expected value (EV) is an anticipated value for an investment at some point in the future. here…
Q: Steve's expected utility
A:
Q: Microeconomics Wilfred’s expected utility function is px1^0.5+(1−p)x2^0.5, where p is the…
A: "In micro-economics, the certainty equivalent is represented as CE and it is a guaranteed return…
Q: An individual has a vNM utility function over money of u(x) Vx, where x is final wealth. She…
A: The utility function is a fundamental economic concept that measures preferences for a variety of…
A has a utility of money function given by U(y) = y.
1 / 3
All of A's wealth is in his land and his house; the total value is $1,000,000. With probability 0.4, the house will burn down within the year, and A's remaining wealth will be only the value of the land, which is $28,900. Using at least half page for your diagram, sketch A's indifference curve given the situation above. Put income in the bad state (loss occurs) on the horizontal axis. Identify the following in your diagram:
a. the expected value of the gamble Jackson faces
b, A's certainty equivalent of the gamble
c. the amount Jackson would be charged for actuarially fair full insurance.
Step by step
Solved in 2 steps with 1 images
- 2. Alice believes that her car would cost £12500 to replace if it was stolen or damaged. Based on crime statistics for the area she lives in, she believes that the probability of her car being stolen or damaged is 0.15. (i) Alice's utility function is given by U(w) = ln(w) for w > 0 and she as £35000 in the bank. Calculate how much Alice would be prepared to pay (in a single payment) to insure her car against theft or damage (ii) Repeat the calculation in the previous part but now assume Alice has £500000 in the bank.Y8John is a farmer with $225 of wealth. He can either plant corn or beans. If he plants corn, John earns an income of $675 if the weather is GOOD and $0 if the weather is BAD. If he plants beans, John earns an income of $451 under both GOOD and BAD weather. The probability of GOOD weather is 0.7. The probability of BAD weather is 0.3. John’s utility function is U(c) = 5√c , where c is the value of consumption. Mae owns an insurance company in a nearby town and has decided to offer conventional crop insurance to corn farmers in the area. Assume that Mae has perfect information and can write and enforce an insurance contract that requires the farmer to plant corn. Here’s how the insurance contract works. At the beginning of the year, the corn farmer pays an insurance premium of $202.5. If the weather is GOOD, Mae makes no payment to the farmer. If the weather is BAD, Mae makes an indemnity payment of $675 to the farmer. a. If a farmer buys this insurance contract,what is Mae’s expected…
- John is a farmer with $225 of wealth. He can either plant corn or beans. If he plants corn, John earns an income of $675 if the weather is GOOD and $0 if the weather is BAD. If he plants beans, John earns an income of $451 under both GOOD and BAD weather. The probability of GOOD weather is 0.7. The probability of BAD weather is 0.3. John's utility function is u(C) = 5VC , where C is the value of consumption. Use this information to fill out the table below. (Don't forget to include the value of wealth when you compute consumption!). The PDF will round all typed numbers to two decimals; However, you should use all decimals when computing your answers. %3D Plant Corn Plant Beans Expected value of consumption Expected value of utility Certainty Equivalent Risk Premium 9. What type of risk preferences does John have? Mae owns an insurance company in a nearby town and has decided to offer conventional crop insurance to corn farmers in the area. Assume that Mae has perfect information and…Your Utility function of U = 5, where I is income. You receive an income of 1600 each week from your laundry delivery service in which you face a 50% chance each week of an accident that costs you $700. Calculate your expected income and expected utility.the video link is: https://www.youtube.com/watch?v=aqEz6kvXhc8please give me detailed solutions and calculations, thank you!
- 3. Sarah's current disposable income is £90,000. Suppose there's a 1% chance that Sarah's house may be flooded, and if it is, the cost of repairing it will be £80,000, reducing her disposable income to £10,000. Suppose also that her utility function of income M is: U = VM (a)Calculate Sarah's expected income and expected utility given the risk of flooding. (b)For her to take an insurance that fully insures her in the event of house flooding, Sarah would have to pay a price for such an insurance, which would reduce her disposable income. What would be the minimum certain disposable income required for Sarah to take an insurance that fully insures her in the event of house flooding? Explain your answer.To go from Location 1 to Location 2, you can either take a car or take transit. Your utility function is: U= -1Xminutes -5Xdollars +0.13Xcar (i.e. 0.13 is the car constant) Car= 15 minutes and $8 Transit= 40 minutes and $4 What is your probability of taking transit given the conditions above? What is your probability of taking transit if the number of buses on the route were doubled, meaning the headways are halved? Remember to include units.! plz solved all parts
- Consider a consumer who can borrow or lend freely at an interest rate of 100% per period of time (think of the period as being, say, 30 years, a bit like with a mortgage). So r = 1.0, or 100%. The consumer's two-period utility function is: U = In(ct) + (1/2)In(Ct+1) The consumer earn Y=100 each period, so Y₁=100 and Yt+1 also equals 100. If this consumer is behaving optimally, trying to maximize her lifetime utility subject to the IBC, what's her consumption in period t?Suppose your utility function for money is a square-root function of its value in US dollars. So, for instance, $400 is worth 20 utils for you, $961 is worth 31 utils for you, and $62.5K is worth 250 utils for you. Now, let’s say your annual salary is $90K, although there is a small risk (p = 0.05) that something catastrophic will happen and reduce your income for the year to $14.4K. An insurance company comes along and offers to insure you against the loss of your salary. The cost of the insurance is $4,736. If you buy the policy and catastrophe strikes, the insurance company will pay out the $75,600 that you would otherwise have lost. From the standpoint of maximizing expected utility, would buying this insurance be a good deal for you? What would be the insurance company’s expected monetary value of selling you the policy?Alex has a utility function U = W2, where W is his wealth in millions of dollars and U is the utility he obtains from that wealth. In the final stage of a game show, the host offers Alex a choice between (A) $9 million for sure, or (B) a gamble that pays $1 million with probability 0.4 and $16 million with probability 0.6. Use the blue curve (circle points) to graph Alex's utility function at wealth levels of $0, $1 million, $4 million, $9 million, and $16 million. Utility (Thousands) 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0 0 2 4 6 8 10 12 14 Wealth (Millions of dollars) 16 18 20 V Utility Function (?)