=Questions 1.6 and 1.7 refer to a consumer with preferences over lotteries represented by the Bernoulliutility function u(x) √4x, who receives two job offers, X and Y, that pay wages that dependon whether the economy enters a boom (A), maintains its actual growth (B) or enters a recession(C). Specifically, X pays (A, B, x℃) = (64, 16,0) and Y pays (YA, YB, YC) = (36, 16, 16). Theprobabilities of scenarios A, B and C are pA =1/4, PB1/2 and pc = 1/4, respectively.=1.6. Identify the expected utilities of X and Y for this individual.□Eu(X) = 9, Eu(Y) = 8□Eu(X) = 9, Eu(Y) = 10Eu(X) = 8, Eu(Y) = 9□Eu(X) = 8, Eu(Y) = 10.1.7. Identify the certainty equivalents of X and Y for this individual.□CE(X) = 25, CE(Y) = 16□ CE(X) = 25, CE(Y) = 20.25CE(X) = 16, CE(Y) = 25.□ CE(X) = 16, CE(Y) ==20.2520.25

We use the following formula to calculate the expected utility: Expected Utility (EU) = pa(U(xa)) +…

= Questions 1.6 and 1.7 refer to a consumer with preferences over lotteries represented by the Bernoulli utility function u(x) √4x, who receives two job offers, X and Y, that pay wages that depend on whether the economy enters a boom (A), maintains its actual growth (B) or enters a recession (C). Specifically, X pays (A, B, C) (64, 16,0) and Y pays (YA, YB, Yc) = (36, 16, 16). The probabilities of scenarios A, B and С are pÃ = 1/4, PB = 1/2 and pc = 1/4, respectively. 1.6. Identify the expected utilities of X and Y for this individual. Eu(X) = 9, Eu(Y) = 10 □ Eu(X) = 8, Eu(Y) = 9 □ Eu(X) = 9, Eu(Y) = 8 □ Eu(X) = 8, Eu(Y) = 10. 1.7. Identify the certainty equivalents of X and Y for this individual. □CE(X) = 25, CE(Y) = 16 CE(X) = 16, CE(Y) = 20.25 CE(X) = 25, CE(Y) = 20.25 CE(X) = 16, CE(Y) = 25.

= Questions 1.6 and 1.7 refer to a consumer with preferences over lotteries represented by the Bernoulli utility function u(x) √4x, who receives two job offers, X and Y, that pay wages that depend on whether the economy enters a boom (A), maintains its actual growth (B) or enters a recession (C). Specifically, X pays (A, B, C) (64, 16,0) and Y pays (YA, YB, Yc) = (36, 16, 16). The probabilities of scenarios A, B and С are pÃ = 1/4, PB = 1/2 and pc = 1/4, respectively. 1.6. Identify the expected utilities of X and Y for this individual. Eu(X) = 9, Eu(Y) = 10 □ Eu(X) = 8, Eu(Y) = 9 □ Eu(X) = 9, Eu(Y) = 8 □ Eu(X) = 8, Eu(Y) = 10. 1.7. Identify the certainty equivalents of X and Y for this individual. □CE(X) = 25, CE(Y) = 16 CE(X) = 16, CE(Y) = 20.25 CE(X) = 25, CE(Y) = 20.25 CE(X) = 16, CE(Y) = 25.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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