MICROECONOMICS
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ISBN: 9780134519494
Author: Acemoglu
Publisher: PEARSON
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Question
Chapter 15, Problem 7P
(a)
To determine
Independence among the events, when card is drawn with replacement.
(b)
To determine
Independence among the events, when card is drawn without replacement.
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Max Pentridge is thinking of starting a pinball palace near a large Melbourne university. His utility is given by u(W) = 1 - (5,000/W), where W is his wealth. Max's total wealth is $10,000. With probability p = 0.9 the palace will succeed and Max's wealth will grow from $10,000 to $x. With probability 1 - p the palace will be a failure and he’ll lose $5,000, so that his wealth will be just $5,000.
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