Consider a trader i has following utility function: u;(X1, x2) = xf x¯", where Xi refers to the quantity of asset with price pi, and i = 1,2 in this case. Suppose the total money of this trader to be completely used for trading is M, and during the whole trading process the price of asset remains constant. (a) buy when she wants to maximize her utility function. Determine the optimal quantity x; for each asset that this trader can Describe in words about her preferences correponding to a = 0, a = 1, (b) and a = 0.5.

Consider a trader i has following utility function: u;(X1, x2) = xf x¯", where Xi refers to the quantity of asset with price pi, and i = 1,2 in this case. Suppose the total money of this trader to be completely used for trading is M, and during the whole trading process the price of asset remains constant. (a) buy when she wants to maximize her utility function. Determine the optimal quantity x; for each asset that this trader can Describe in words about her preferences correponding to a = 0, a = 1, (b) and a = 0.5.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter18: Asymmetric Information

Section: Chapter Questions

Problem 18.2P

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