Can you help me solve this problem please? PageNora is a runner looking for a new pair of running shoes. She found a pair that looks nice and fitswell. However, Nora cannot determine the shoes' quality until they are too well worn to return.There is a 3/4 chance the pair is high-quality and worth $256 to her (256 = .75), and a 1/4chance it is low-quality and worth only $36 to her (736 = .25).Nora's preferences over money (W)-or over the equivalent value represented by how much theshoes are worth to her-can be represented by the following utility function:U(W) = √Wa. Calculate Nora's expected value of the pair of shoes and expected utility. Which is larger, herexpected utility or her utility of receiving the expected value with certainty?b. What level of wealth (that means, money not spent on shoes) would make Nora indifferentbetween purchasing or not these shoes? Why?c. Using the graph below, label the following amounts:i.The expected value of the pair of shoes to Nora (on the horizontal axis).ii.Nora's utility with a gift card worth this expected value in dollars (on the vertical axis).Nora's expected utility of buying these shoes (on the vertical axis).iii.iv.The level of wealth that makes Nora indifferent between purchasing the shoes or not(on the horizontal axis).V.The risk premium (a distance, or interval, on the horizontal axis). Utility36256U(W) = √WEU36U (36) + 7256U (256)W (Wealth)

Utility function : U = (W)0.5 High Quality worth = 256 Probability = 0.75 Low Quality Worth = 36…

Nora is a runner looking for a new pair of running shoes. She found a pair that looks nice and fits well. However, Nora cannot determine the shoes' quality until they are too well worn to return. There is a 3/4 chance the pair is high-quality and worth $256 to her (256 = .75), and a 1/4 chance it is low-quality and worth only $36 to her (736 = .25). Nora's preferences over money (W)-or over the equivalent value represented by how much the shoes are worth to her-can be represented by the following utility function:

Nora is a runner looking for a new pair of running shoes. She found a pair that looks nice and fits well. However, Nora cannot determine the shoes' quality until they are too well worn to return. There is a 3/4 chance the pair is high-quality and worth $256 to her (256 = .75), and a 1/4 chance it is low-quality and worth only $36 to her (736 = .25). Nora's preferences over money (W)-or over the equivalent value represented by how much the shoes are worth to her-can be represented by the following utility function:

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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