Macroeconomics
13th Edition
ISBN: 9780134735696
Author: PARKIN, Michael
Publisher: Pearson,
expand_more
expand_more
format_list_bulleted
Question
Chapter 20, Problem 11APA
To determine
Identify the maximized expected utility and the larger expected wealth.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Give 7 things you need to do to become a better student. Explain each briefly. Give an introduction before giving your seven (7). Maximize the entire page.
https://www.youtube.com/watch?v=p9twMLaxEHY
As an investment advisor, you tell a client that an investment in a mutual fund has (over the next year) a higher expected return than an investment in the money market. The client then asks the following questions: a. Does that imply that the mutual fund will certainly yield a higher return than the money market? b. Does it follow that I should invest in the mutual fund rather than in the money market? How would you reply?
Economics
A person likes to gamble and has $100 on him. He
is going to play the following game: if he bets $b,
then with probability p, 0 < p< 1, he will win $b;
with probability 1 – p, he will lose his $b. He is
given the opportunity to play at most 20 times.
He is a very disciplined gambler and is going to
use the following strategy:
• Every time he plays, he will make a bet equal to
half of the amount of money he has at that
moment.
• If the amount of money he has gets to $300 or
higher, then he will stop playing.
Find the probability that, starting with $100 and
given 20 chances to play the game, this person
will get to $300 or more. Formulate this problem
recursively by writing down the “Bellman
equation." What is (are) the state variable(s)? Be
specific about any constraints or initial/boundary
conditions for this problem.
Chapter 20 Solutions
Macroeconomics
Ch. 20.1 - Prob. 1RQCh. 20.1 - Prob. 2RQCh. 20.1 - Prob. 3RQCh. 20.1 - Prob. 4RQCh. 20.2 - Prob. 1RQCh. 20.2 - Prob. 2RQCh. 20.2 - Prob. 3RQCh. 20.2 - Prob. 4RQCh. 20.3 - Prob. 1RQCh. 20.3 - Prob. 2RQ
Ch. 20.3 - Prob. 3RQCh. 20.3 - Prob. 4RQCh. 20.4 - Prob. 1RQCh. 20.4 - Prob. 2RQCh. 20.4 - Prob. 3RQCh. 20 - Prob. 1SPACh. 20 - Prob. 2SPACh. 20 - Prob. 3SPACh. 20 - Prob. 4SPACh. 20 - Prob. 5SPACh. 20 - Prob. 6SPACh. 20 - Prob. 7APACh. 20 - Prob. 8APACh. 20 - Prob. 9APACh. 20 - Prob. 10APACh. 20 - Prob. 11APACh. 20 - Prob. 12APACh. 20 - Prob. 13APACh. 20 - Prob. 14APACh. 20 - Prob. 15APACh. 20 - Prob. 16APACh. 20 - Prob. 17APACh. 20 - Prob. 18APACh. 20 - Prob. 19APACh. 20 - Prob. 20APACh. 20 - Prob. 21APACh. 20 - Prob. 22APACh. 20 - Prob. 23APA
Knowledge Booster
Similar questions
- 6. Jerry plans to buy a new Bluetooth headset. He knows that the same product is offered in different shops with prices of $44, $49, and $60, and with odds of one-third of finding each price. He just stopped at a shop and knows that their price is $49. If the search cost is $1 per additional search, what should Jerry do?arrow_forwardYour 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.arrow_forwardWhich is correct answer? quickyarrow_forward
- Mr Usu has an expected utility function with u(x) = x0.5. He is analyzing an investment opportunity that promises to pay out $1,160 with prob. 0.6 and $2,800 with prob. 0.4. What is the expected utility of this opportunity?arrow_forwardGive typed explanation of the each option givenarrow_forwardQUESTION FIVE: CONSUMPTION UNDER UNCERTAINTY (a) What does it mean for consumers to maximize expected utility? Can you think of a case in which a person might not maximize expected utility? (b) As the owner of a family farm whose wealth is $250,000, you must choose between sitting this season out and investing last year's earnings ($200,000) in a safe money market fund paying 5.0 percent or planting summer corn. Planting costs $200,000, with a six-month time to harvest. If there is rain, planting summer corn will yield $500,000 in revenues at harvest. If there is a drought, planting will yield $50,000 in revenues. As a third choice, you can purchase AgriCorp drought-resistant summer corn at a cost of $250,000 that will yield $500,000 in revenues at harvest if there is rain, and $350,000 in revenues if there is a drought. You are risk averse, and your preference for family wealth (W) is specified by the relationship U(W) = √W. The probability of a summer drought is 0.30, while the…arrow_forward
- You are trying to decide between rescuing a puppy or an older dog. You decide to try to assign some numbers to your preferences so you can compare options. You estimate that your utility for a dog that will chew your furniture is 0.1 and your utility for a dog that can go on hikes with you is 0.8. You expect that a puppy will have an 70% chance of chewing your belongings and a 90% chance of going on hikes. What is your expected utility for getting the puppy?arrow_forwardWhy do economists say that people tend to be risk-averse?arrow_forwardWhich of the following is NOT axioms of utility? A. Completennes B. Interdependence C. Continuity D. Innovation 2. What is the study of how investors react to certain ways to diversify a portfolio? A. Behavioral Finance B. Traditional Finance C. Utility Theory D. Trend Theory 3. What do you call an act and ways that are consistent with how the business world views moral principles and values? A. Ethical Behavior B. Organizational Factors C. Issues and Concerns D. Organizational Behaviorarrow_forward
- Economics Consider a potential criminal with a lawful income of $121. Potential loot from robbery is $75. The probability of being caught and imprisoned is 0.50 and a prison term for this type of crime is 0.33 units of time. Round to one decimal place in all calculations. Utility is given by: Utility = (income)1/2 A. Calculate the guaranteed utility from lawful income and the expected utility of committing the crime. What will the potential criminal do? Explain why. Would your answer change if there were an anguish cost of 1 util involved? Explain. B. Suppose all the information given above holds true, except there is no anguish cost. You are a city official who has some extra room in the budget to dedicate towards fighting crime. For the use of these resources, you can choose between either increasing the length of prison term for criminals to 0.595 units of time or investing in GIS technologies and improved policing strategies that will increase the probability of criminals being…arrow_forwardPaul hires Amy to manage his bakery shop. The following table gives the shop's profits (without subtracting payments to Amy) under 3 different levels of Amy's effort and two different states of the world (good and bad weather). There is an 80% probability that the weather would turn good. Bad weather (20%) Good weather (80%) Low Effort 200 400 Medium Effort 400 800 High Effort 800 1000 The cost of low effort is $10, medium effort $20 and high effort $40. Paul offers a fixed salary of $100 and bonus B if revenue is equal to or higher than $800 and nothing otherwise. What should be the minimum value of B so that Amy would put high effort?arrow_forwardwhich is correct answer?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning