Consider the lottery that assigns a probability 7 of obtaining a level of consumption CH and a probability 1-7 of obtaining a low level of consumption c̟ with cí > cL. Consider an individual facing such a lottery with utility function u(c) that has the properties that more is better (that is, a strictly positive marginal utility of consumption at all levels of c) and diminishing marginal utility of consumption, u"(c) < 0. As usual, we are using the shorthand u'(c) = du for the first derivative of the utility function with respect to consumption and u"(c) = Puc) (which is also the derivative of the first derivative of the utility function). du(c) du'(c) to be the second derivative of the utility function %3D %3D dc2 dc

Consider the lottery that assigns a probability 7 of obtaining a level of consumption CH and a probability 1-7 of obtaining a low level of consumption c̟ with cí > cL. Consider an individual facing such a lottery with utility function u(c) that has the properties that more is better (that is, a strictly positive marginal utility of consumption at all levels of c) and diminishing marginal utility of consumption, u"(c) < 0. As usual, we are using the shorthand u'(c) = du for the first derivative of the utility function with respect to consumption and u"(c) = Puc) (which is also the derivative of the first derivative of the utility function). du(c) du'(c) to be the second derivative of the utility function %3D %3D dc2 dc

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.11P

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