Maria has $100. There is a 50% that she will lose all of it. Her utility as a function of wealth is u(c) = √c. a. What is the maximum amount she would be willing to pay to fully insure against the 50% probability of the loss? b. Is she risk averse, risk loving, or risk neutral?
Q: The foreign policy approach of increasing the territorial or economic influence of one’s own country…
A: The foreign policy approach of increasing the territorial or economic influence of one's own country…
Q: Question 1 Suppose the government imposes an excise tax of $1 for every gallon of gas sold. Before…
A: The government imposes an excise duty tax of $1 for every gallon of gas. The price before the tax…
Q: Which of the following is true about the demand for gasoline? A. It is probably more…
A: Price ealsticity of demand refers to the percentage change in the quantity demanded of the goods or…
Q: Determine the IRR for an equipment that costs $250,000 and would provide positive cash flows of…
A: Cash flow:The sum of the total money is represented in the diagram. It represents the magnitude and…
Q: ou have three tickets to a Celtics game on a night that you are going to be out of town (so the…
A: An English auction, also known as an open ascending price auction, is one of the most common auction…
Q: Wage D1 Select one: $1 D2 $2 Quantity Refer to Figure 18-6. The graph above illustrates the market…
A: The labor demand curve describes the relationship between the quantity of labor demanded by a firm…
Q: a. Derive Home’s import demand and Foreign’s supply schedule and prices of wheat in absence of…
A: Import demand indicates the demand by domestic residents but for foreign produced product not home…
Q: Long-run equilibrium in a perfectly-competitive market satisfies all but which market condition? P =…
A: In perfect competition, There exists a large number of buyers and sellers. The firm will produce…
Q: After an unexpected ________ in the price of oil, the long-run adjustment decreases the price level…
A: Unemployment refers to the state of being without a job, actively seeking employment, and being…
Q: According to the law of demand price and quantity A) supplied are inversely related.…
A: The Law of Demand states that, ceteris paribus (all other factors held constant), as the price of a…
Q: Which of the following is an example of economies of scope? A) A mountain resort begins running…
A: Economies of scope, refer to the cost savings and efficiencies that can be achieved when a firm is…
Q: 10. Interpreting the supply of labor The following graph depicts the labor supply curve for Hilary,…
A: The labor market plays a critical role in the complex interplay between policy objectives. In this…
Q: Consider the AD-AS model where the economy is currently at point A. Show the short-run effect of a…
A: The government regularly interferes in the market to prevent any malpractices like a decrease in…
Q: Explain in words how investment multiplier and the interest sensitivity of aggregate demand affect…
A: The IS-LM model is a macroeconomic model that explains the relationship between the real interest…
Q: Which one of the following statements is the most accurate? O A. Under a dirty float exchange rate,…
A: Fixed exchange rate refers to a system in which a country's currency is set at a specific value in…
Q: Using the Rule of 70, how many years would it take for a country's GDP to increase from $100 billion…
A: The rule of 70 provides the number of years it takes for an economy to double in size. It will be…
Q: Refer to Figure 12-10. If the price is less than $6, the firm should short run and in the long run.…
A: The study and analysis of commercial financial concerns using abstract economic ideas and concepts…
Q: Figure & The vertical distance between poons A and B represents a tax in the market Refer to Figure…
A: The demand curve is the downward-sloping curve. The supply curve is the upward-sloping curve.The…
Q: PRICE OR COST (dollars per unit) PRICE 0 A B C QUANTITY D E ATC MC AVC MR For a perfectly…
A: In perfect competition, There exists a large number of buyers and sellers. The firm produces where…
Q: Suppose the production function is given by Q-2K+6L. What is the average product of capital when 4…
A: The average product of capital is the amount of output per unit of capital input. It is the ratio of…
Q: If a purely competitive constant-cost industry is realizing economic losses, we can expect industry…
A: Perfectly competitive market refers to a market at which there are many buyers and sellers dealing…
Q: Price level 0 A A) AD₁ to AD₂. B B) AD₂ to AD₁. Refer to Figure 24-1. Ceteris paribus, a decrease in…
A: Aggregate demand is the sum of consumption, investment, government spending and net export. This…
Q: NationalGranting a conventional loan requires that the borrower provide the lender with.....?
A: A loan is a financial game plan wherein one party, regularly a lender (like a bank or financial…
Q: Required information An electric switch manufacturing company is trying to decide between three…
A: The initial cost, annual operating cost and salvage values for all three methods are presented in…
Q: Table 13-4 Charles's Math Tutoring Number of Workers 13 14 Output (number of students tutored per…
A: The sum of fixed costs, which remain constant regardless of production level, like rent, and…
Q: If total variable cost is $68 and average variable cost is $4, quantity of output equals Now,…
A: Fixed Cost remains fixed at all units of output. Variable Cost varies with the changes in output. It…
Q: Classify the following topics as relating to microeconomics or macroeconomics. Topic A firm's…
A: Microeconomics: The branch of economics that focuses on the behavior and decision-making of…
Q: Question 23 Consider a market where production of equilibrium, the external costs have been…
A: Negative externality: a negative externality is an unintended side effects or consequence of an…
Q: The monopoly firm is while the perfectly competitive firm is O a. a firm that faces a…
A: The organizational characteristics and competitive environment of a market in which firms operate…
Q: Four methods of completing a tax retum and the time taken by each method are A PC, one hour B Pocket…
A: Technological Efficiency:It measures the effectiveness of a method or technology in accomplishing a…
Q: income is $500, the price of food (F) is $2 per unit, and the price of shelter (S) is $100. Which of…
A: Utility means satisfaction.Marginal utility is the utility derived from the consumption of an…
Q: Which of the following is TRUE of an open economy? GDP=C+I+G+X-IM OGDP=C+1+G OGDP=T-TR-G GDP =…
A: In economics the Gross Domestic Product (GDP) refers to the the total value of all final economic…
Q: The market to buy and sell organs: Multiple Choice O O O would never exist because it is unfair.…
A: This can be described as a form of market in which no single producer or consumer has the power to…
Q: You are the manager of Taurus Technologies, and your sole competitor is Spyder Technologies. The two…
A: Inverse Market Demand Curve: A function that shows the price at which a product is sold in a…
Q: A manufacturing firm has received a contract to assemble 1000 units of test equipment in the next…
A: Skilled labor refers to a specific group within the workforce. These individuals possess…
Q: A firm is considering bidding for the franchise to sell cola and hot dogs at a baseball stadium. It…
A: There are 2 products:ColaHot DogsDemand functions for Cola and Hot DogDc=20 - 4pc —PHDH = 15 — Pc —…
Q: Use the following supply and demand graph for product X to answer the question below. Price X Q₁…
A: Externality is the External cost or benefit borne by the third party. There is positive externality…
Q: Countries X and Y have the same amount of labour and the same level of technology, but country X has…
A: Labor productivity: It is the measure of how efficiently labor is used in production and is…
Q: Reserve Requirem (Percent) 25 10 Simple Money Multiplier 川川 A lower reserve requirement is…
A: Reserve requirements are the number of funds that a bank holds in reserve to make sure that it can…
Q: Problems 1-6 are based on the following information: A company sells PC software whose price is…
A: Profit:Profit refers to the amount earned after all the costs are deducted from the total revenue.…
Q: in monopolistic competitor is like a competitive firm in the long run because a) it earn zero…
A: A monopolistic market is a market structure characterized by a single firm or seller dominating the…
Q: An industry consists of three firms with sales of $285,000,$615,000 , and $310,000 . a.…
A: HHI in economics refers to the Herfindahl-Hirschman Index. It is a commonly used method of market…
Q: When firms in a competitive market are experiencing zero economic profits, one can assume that O…
A: A zero economic profit means that the firm is covering all of its cost, inclusive of the opportunity…
Q: n a consumption-leisure model, where P is the price of consumption and w is the wage and h is the…
A: In a consumption-leisure model, you can mathematically calculate the effect of a wage increase on a…
Q: Which of the following is not a characteristic of a perfectly competitive market? O zero economic…
A: Perfect competition is a market structure where there are large no of buyers and sellers selling…
Q: Suppose that the world price of oil is $70 per barrel and that the United States can buy all the oil…
A: In economics, price ceiling is a government regulation setting a maximum price a business may charge…
Q: PRICE (Dollars per bippitybop) 120 110 100 90 80 70 60 50 40 30 20 10 0 0 8 5 10 15 20 25 30 35 40…
A: Demand curve is the willingness to curve that a buyer is willing to pay maximum amount for specific…
Q: The production possibilities frontier, below, represents production choices for the hypothetical…
A: PPC: Graphical representation of the combination of two goods that can be produced in the economy in…
Q: What is the effect of an increase in the tax rate on interest income on the supply of and the demand…
A: When the tax rate on interest income increases, it reduces the after-tax return on investments such…
Q: An increase in the demand for lobster due to changes in consumer tastes, accompanied by a decrease…
A: The supply or demand curves vary in response to changes in factors other than price. Variations in…
2. Maria has $100. There is a 50% that she will lose all of it. Her utility as a function
of wealth is u(c) = √c.
a. What is the maximum amount she would be willing to pay to fully insure against
the 50% probability of the loss?
b. Is she risk averse, risk loving, or risk neutral?
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 10 images
- Jamal has a utility function U = W1/2, 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 Jamal a choice between (A) $4 million for sure, or (B) a gamble that pays $1 million with probability 0.6 and $9 million with probability 0.4. (1) Does A or B offer Jamal a higher expected utility? Explain your reasoning with calculations. (2) Should Jamal pick A or B? Why? I would like help with the unanswered last parts of the questions.Jamal has a utility function U = W1/2, 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 Jamal a choice between (A) $4 million for sure, or (B) a gamble that pays $1 million with probability 0.6 and $9 million with probability 0.4. a. b. c. d. Graph Jamal’s utility function. Is he risk averse? Explain. (2+2) Does A or B offer Jamal a higher expected prize? Explain your reasoning with appropriate calculations. (1) Does A or B offer Jamal a higher expected utility? Explain your reasoning with calculations. (2) Should Jamal pick A or B? Why?Khalid has a utility function U = W1/2, where W is his wealth in millions of dollarsand U is the utility he obtains from the wealth. In a game show, the host offershim a choice between (A) $4 million for sure, or (B) a gamble that pays $1million with probability 0.6 and $9 million with probability 0.4.i. Graph Khalid’s utility function with the help of above utility function. Ishe risk lover? Explain. ii. Does A or B choice offer Khalid a higher expected prize? Explain yourreasoning with appropriate calculations. iii. Does A or B offer Khalid a higher expected utility? Again, show yourcalculations. iv. Should Jamal pick A or B choice? Why?
- Natasha has utility function u(I) = (10*I)0.5, where I is her annual income (in thousands). (a) Is she a risk loving, risk averse or risk neutral individual? She is [risk loving, risk adverse, risk neutral] , as her utility function is [concave, convex, linear] (b) Suppose that she is currently earning an income of $40,000 (I = 40) and can earn that income next year with certainty. She is offered a chance to take a new job that offers a 0.6 probability of earning $44,000 and a 0.4 probability of earning $33,000. She should [take, not take] the new job because her expected utility of (approximately) [18.27,19.82,20,20.95,21.14] is [greater than, less than, equal to] her current utility of [18.27,19.85,20,20.95,21.14] .Jamal has autility function U=W1/2,where W is his wealth in millions of dollars and U is the utitlity he obtains from that wealth.Inthe final stage of a game show,the host offers offers Jamal a choice(A)$4 million dollar for sure,or (B) a gamble that pays $1 million with probability 0.6 and $9million with probability 0.4. a.Graph Jamal's utitility function.Is he risk averse?Explain. b.Does A or B offers Jamal a higher expected price?Explain your reasoning with appropriate calculations. c.Does A or B offer Jamal a higher expected utility? d.Should Jamal pick A or B? Why?Angie owns an endive farm that will be worth $90,000 or $0 with equal probability. Her Bernouilli utility function is u(w) =√w, where w is her wealth level (sum of initial wealth and the worth of the endive farm). 1. Suppose her firm is the only asset she has, that is, she has no initial wealth. What is the lowest price P at which she will agree to sell her endive farm before she knows how much it will be worth? 2. Redo part (1) assuming that she has $160,000 in her bank safe. 3. Compare and discuss your results in parts (1) and (2). What relationship can you find between Angie’s initial wealth level (zero versus $160,000) and her risk aversion?
- . Priyanka has an income of £90,000 and is a von Neumann-Morgenstern expected utility maximiser with von Neumann-Morgenstern utility index u(x) = square root x. There is a 1 % probability that there is flooding damage at her house. The repair of the damage would cost £80,000 which would reduce the income to £10,000. a) Would Priyanka be willing to spend £500 to purchase an insurance policy that would fully insure her against this loss? Explain. b) What would be the highest price (premium) that she would be willing to pay for an insurance policy that fully insures her against the flooding damage?David is an expected-utility maximizer that likes to drive fast (and reckless at times), so his probability of an accident is 2/3. David’s preferences over wealth are u(w) = √?. Suppose that David’s initial wealth is $100. If David has an accident, he incurs a $51 loss. How much is the risk premium David willing to pay to be as well off in case of accident or not?2. Consider an individual with a current wealth of $100,000 who faces the prospect of a 25% chance of losing $20,000 through theft of her car during the next year. If the person’s utility function is U(X) = ln(X), where X is wealth: a. calculate expected utility without insurance, b. calculate the actuarially fair premium for full insurance, c. calculate expected utility with full insurance at the actuarially fair premium d. calculate the maximum amount the individual would pay for full insurance.
- Suppose that Mira has a utility function given by U=2I+10√I. She is considering two job opportunities. The first job pays a salary of $40,000 for sure. The second job pays a base salary of $20,000 but offers the possibility of a $40,000 bonus on top of your base salary. She believes that there is a probability of p=0.50 that she will earn the bonus. What is the expected salary of the second job? Which offer gives Mira a higher expected utility? Based on this information, is Mira risk adverse, risk neutral, or risk-loving?Stewart will have a total wealth of $12,000 this year, if he stays healthy. Suppose Stewart has a 50% chance of staying healthy and a 50% chance of getting sick. If Stewart gets sick, then he will have to pay $8,000 for medical bills, leaving him $4,000 of total wealth. Under these conditions, Stewarts expected wealth (a.k.a. expected value of wealth) is $8,000. Based on the graph shown below, what level of wealth with certainty (i.e., wealth that Stewart is certain to have) would make Stewart equally as happy as he is when facing the 50% chance of being sick?An investor has a power utility function with a coefficient of relative risk aversion of 3. Compare the utility that the investor would receive from a certain income of £2 with that generated by a lottery having equally likely outcomes of £1 and £3. Calculate the certain level of income which, for an investor with preferences as above, would generate identical expected utility to the lottery described. How much of the original certain income of £2 the investor would be willing to pay to avoid the lottery? Detail the calculations and carefully explain your answer.