EBK INTERMEDIATE MICROECONOMICS AND ITS
12th Edition
ISBN: 9781305176386
Author: Snyder
Publisher: YUZU
expand_more
expand_more
format_list_bulleted
Question
Chapter 4, Problem 4.7P
a.
To determine
To describe: If S would buy the given option.
b.
To determine
To describe: S’s degree of risk aversion might affect the willingness to buy this option.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
In Las Vegas, roulette is played on a wheel with 38 slots, of which 18 are black, 18 are red, and 2 are green
(zero and double-zero). Your friend impulsively takes all $361 out of his pocket and bets it on black, which pays
1 for 1. This means that if the ball lands on one of the 18 black slots, he ends up with $722, and if it doesn't, he
ends up with nothing.
Once the croupier releases the ball, your friend panics; it turns out that the $361 he bet was literally all the
money he has. While he is risk-averse - his utility function is u(x) =, where x is his roulette payoff - you are
effectively risk neutral over such small stakes.
a. When the ball is still spinning, what is the expected profit for the casino?
b. When the ball is still spinning, what is the expected value of your friend's wealth?
c. When the ball is still spinning, what is your friend's certainty equivalent (i.e., how much money would he
accept with certainty to walk away from his bet).
Say you propose the following…
In 'the dictator' game, one player (the dictator) chooses how to divide a pot of $10 between herself and another player (the recipient). The recipient does not have an opportunity to reject the proposed distribution. As such, if the dictator only cares about how much money she makes, she should keep all $10 for herself and give the recipient nothing. However, when economists conduct experiments with the dictator game, they find that dictators often offer strictly positive amounts to the recipients.
Are dictators behaving irrationally in these experiments? Whether you think they are or not, your response should try to provide an explanation for the behavior.
Use the scenario below to answer the question.
Chocolate raisin protein bars are Duc’s favorite dessert. A local bakery sells them for $1.00 each. Duc buys one and eats it at the bakery. Duc decides that he wants another one, but is not willing to pay full price. He knows the owner of the bakery and wants to negotiate. He offers to buy two more protein bars at $0.75 each. He plans to eat one at the store and anther one later. The bakery owner agrees to the deals.
What is the total utility of Duc’s decision?
00
75
50
00
Chapter 4 Solutions
EBK INTERMEDIATE MICROECONOMICS AND ITS
Ch. 4.1 - Prob. 1MQCh. 4.1 - Prob. 2MQCh. 4.1 - Prob. 3MQCh. 4.2 - Prob. 1TTACh. 4.2 - Prob. 2TTACh. 4.2 - Prob. 1MQCh. 4.3 - Prob. 1TTACh. 4.3 - Prob. 2TTACh. 4.3 - Prob. 1MQCh. 4.3 - Prob. 2MQ
Ch. 4.3 - Prob. 3MQCh. 4.3 - Prob. 1.1TTACh. 4.3 - Prob. 1.2TTACh. 4.3 - Prob. 2.1TTACh. 4.3 - Prob. 2.2TTACh. 4.3 - Prob. 1.1MQCh. 4.3 - Prob. 2.1MQCh. 4.3 - Prob. 3.1MQCh. 4.4 - Prob. 1TTACh. 4.4 - Prob. 2TTACh. 4 - Prob. 1RQCh. 4 - Prob. 2RQCh. 4 - Prob. 3RQCh. 4 - Prob. 4RQCh. 4 - Prob. 5RQCh. 4 - Prob. 6RQCh. 4 - Prob. 7RQCh. 4 - Prob. 8RQCh. 4 - Prob. 9RQCh. 4 - Prob. 10RQCh. 4 - Prob. 4.1PCh. 4 - Prob. 4.2PCh. 4 - Prob. 4.3PCh. 4 - Prob. 4.4PCh. 4 - Prob. 4.5PCh. 4 - Prob. 4.6PCh. 4 - Prob. 4.7PCh. 4 - Prob. 4.8PCh. 4 - Prob. 4.9PCh. 4 - Prob. 4.10P
Knowledge Booster
Similar questions
- Suppose you have $35,000 in wealth. You have the opportunity to play a game called "Big Bet/Small Bet." In this game, you first choose whether you would like to make a big bet of $15,000 of a small bet of $5,000. You then roll a fair die. If you roll a 4, 5, or 6, you win the game and earn $15,000 for the big bet or $5,000 for the small bet. If you roll a 1, 2, or 3, you lose and lose $15,000 for the big bet and $5,000 for the small bet the game Utility U₂ U₁ BEL 0 11 LATE EE ARTE Are the Small Bet and Big Bet considered fair bets? O Big Bet is fair, but Small Bet is not. No, both are not fair. Yes, both are fair. 20 OSmall Bet is fair, but Big Bet is not. G HA 1 35 D E 1 1 1 1 1 F 1 U 50 Income (thousands of dollars)arrow_forwardThe New York Subway Bakery is famous for selling large "black and white cookies." The top of each cookie has one-half chocolate icing and one-half vanilla icing. Mario, the baker, bakes at night after the customers leave. Mario wants to bake two hundred fifty black and white cookies. Mario has thirteen pounds of sugar. there are approximately eleven cups of sugar in a pound. Mario needs three cups of sugar for each batch of black and white cookies. Each batch of cookies dough makes five large black and white cookies. Does Mario have enough sugar to bake two hundred fifty black and white cookies? How many whole batches of black and white cookies can Mario bake? Mario has five dozen cookie boxes. Each cookie box holds four black and white cookies. How many cookies boxes does Mario use to package the black and white cookies he bakes? Between what two whole numbers are the total black and white cookies boxes Mario uses? Mario charges twenty-seven dollars and eighty-five cents per box of…arrow_forwardAmir and Beatrice play the following game. Amir offers an amount of money z € [0, 1] to Beatrice. Beatrice can either accept or reject. If Beatrice accepts, then Amir receives 1 - z dollars and Beatrice receives a dollars. If Beatrice rejects, then both receive no money. As in the Ultimatum Game, Amir cares only about maximizing the amount of money he receives. Beatrice, on the other hand, detests Amir, and therefore cares about the amount of money that both receive: if Amir receives y dollars and Beatrice receives a dollars, then Beatrice's payoff is a-ay where a > 0. (a) Find all pure strategy Nash equilibria of the game in which the two players choose simultaneously (thus Beatrice accepts or rejects without seeing Amir's offer). Solution: The NE are the strategy profiles in which Beatrice rejects and Amir's offer a satisfies 2-a(1-x) ≤0, i.e. r ≤a/(1+a). (b) Find all subgame perfect equilibria of the sequential game in which Amir first makes the offer and Beatrice observes the offer…arrow_forward
- You suspect that you are a price leader in the market. Moreover, you are considering expanding your operations. H.R. Shovenstuff will observe your moves and then follow, but he is more secretive so you will not know whether to price high or low after his pricing decision has been made. Using the following game tree, solve for the Nash equilibrium. High Price Shovenstuff High Price Low Price You High Price (2,1) (6,2) Invest Low Price Invest, High Price, High Price O Invest, Low Price, High Price Invest, Low Price, Low Price O Don't Invest, High Price, High Price Don't Invest, Low Price, High Price LOW Price (2,4) You High Price (4,4) Don't Invest High Price Low Price Shovenstuff Low Price You High Price (8,1) (2.6) Low Price (2,1)arrow_forwardTwo roommates John and Joe are playing a simultaneous game of cleaning the apartment. If neither of them clean, the apartment gets filthy and both get a utility of 2. If John cleans and Joe doesn’t, John gets a utility of 1 and Joe gets a utility of 4. If Joe cleans and John doesn’t, Joe gets a utility of 1 and John gets a utility of 4 and if both clean up the apartment, they each get a utility of 3.What is the Nash equilibrium of this game? Group of answer choices Joe cleans, John doesn’t John cleans, Joe doesn’t Both of them clean the apartment Neither of them clean the apartmentarrow_forwardTwo roommates John and Joe are playing a simultaneous game of cleaning the apartment. If neither of them clean, the apartment gets filthy and both get a utility of 2. If John cleans and Joe doesn't, John gets a utility of 1 and Joe gets a utility of 4. If Joe cleans and John doesn't, Joe gets a utility of 1 and John gets a utility of 4 and if both clean up the apartment, they each get a utility of 3. If the roommates played the game repeatedly where one roommate not cleaning this time would trigger the other roommate not cleaning next time, the Nash equilibrium is most likely to be: a) Joe cleans, John doesn't b) John cleans, Joe doesn't c) Both of them clean d) Neither of them clean Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forward
- Two roommates John and Joe are playing a simultaneous game of cleaning the apartment. If neither of them clean, the apartment gets filthy and both get a utility of 2. If John cleans and Joe doesn’t, John gets a utility of 1 and Joe gets a utility of 4. If Joe cleans and John doesn’t, Joe gets a utility of 1 and John gets a utility of 4 and if both clean up the apartment, they each get a utility of 3. If the apartment owner decides to fine both the roommates if the apartment is dirty, such that now if neither of them clean they each get a 5 utility loss, what would the new equilibrium be now? a. John cleans, Joe doesn’t b. Joe cleans, John doesn’t c. Neither of them clean the apartment d. Both A&Barrow_forwardTwo roommates John and Joe are playing a simultaneous game of cleaning the apartment. If neither of them clean, the apartment gets filthy and both get a utility of 2. If John cleans and Joe doesn't, John gets a utility of 1 and Joe gets a utility of 4. If Joe cleans and John doesn't, Joe gets a utility of 1 and John gets a utility of 4 and if both clean up the apartment, they each get a utility of 3. Is the equilibrium efficient?arrow_forwardAlice and Julia want to spend time together but have different preferences for their activities. They can choose between two options: going to a soccer game or watching a football game. Alice prefers football and Julia prefers the football game, but they both prefer being together over being apart. If they both choose to attend a soccer game then Julia receives a payoff of 2 and Alice a payoff of 1. If they both choose to attend a football game, then Julia receive a payoff of 1 and Alice a payoff of 2. If one chooses a football game and the other a soccer game then they both receive a payoff of O. The payout matrix below illustrates these payoffs. Which of the following statements are true: I. There is a dominant strategy II. A nash equilibrium exists where Alice attends a football game and Julia attends a soccer game III. A nash equilibrium exists where both friends attend a soccer game IV. Both attending a football game is a stable outcome. Alice Soccer Football Julia Soccer Football…arrow_forward
- Tom and Jerry are room mates. They spend a total of 80 hours a week together in their room. Tom likes loud music, even when he sleeps. His utility function is UT(CT, M) = CT + M, where CT is the number of cookies he eats per week and M is the number of hours of loud music per week that is played while he is in their room. Jerry hates all kinds of music. His utility function is M² 12 UJ = CJ Every week, Tom and Jerry each get 12 chocolate chip cookies sent from home. They have no other source of cookies. We can describe this situation with a box that looks like an Edgeworth box. The box has cookies on the horizontal axis and hours of music on the vertical axis. Let the bottom-left corner be the origin for Tom, and the bottom-right corner be the origin for Jerry. Suppose the dorm's policy is "rock-n-roll is good for the soul." Thus, M=80 in the initial endowment. Consider a trade between Tom and Jerry: Jerry gives Tom one cookie for reducing one hour of music. Then the change in Jerry's…arrow_forward4.2. Game theory (Prisoner's dilemma). Often, many sectors in an economy have two main rivals, battling it out in the marketplace. There can be rivalry such as between Apple and Samsung in Phones and Laptops. Suppose Apple plans to cut its price. Samsung will likely follow suit to retain its market share. This may end up with low profits for both companies. A price drop by either company may thus be construed as defecting since it breaks an implicit agreement to keep prices high and maximize profits. Thus, if Apple drops its price but Samsung continues to keep prices high, Apple is defecting, while Samsung is cooperating (by sticking to the spirit of the implicit agreement). In this scenario, Apple may win market share and earn incremental profits by selling more. Assume that the incremental profits that accrue to Apple and Samsung are as follows: If both keep prices high (Cooperate), profits for each company increase by AED200 million (because of normal growth in demand). If one drops…arrow_forwardSuppose that Ciana is deciding whether or not to buy a pair of sneakers that she has been researching online, and also the best place to make her purchase. Three different stores in the area sell the sneakers she likes, but some stores are more convenient for Ciana to reach than others. One option is her local shoe store located only 15 minutes away from where she works, where they charge a marked-up price of $124 for the sneakers: Store Travel Time Each Way Price of a Sneakers (Minutes) (Dollars per sneakers) Local Shoe Store 15 124 Different Neighborhood in Town 30 103 Rural Outlet 60 70 Ciana earns an hourly wage of $30 at her job. In order to purchase her sneakers she will have to take time off work, so each hour away from her job costs her $30 in lost income. Assume that Ciana’s travel time is the same each way (to and from the store) and that it will take her 30 minutes once she reaches a store to complete her shopping. Assume throughout the question…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSON
Engineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education