. Explain the interpretation of a utility function and why such a function should be increasing. is said that the utility function of a decision maker is given by Ua(x) = 2ax – x², x € R for some a > 0.For which lotteries with random outcomes X is the above function a utility function? Explain your answer and give an example of a lottery or specify a distibution of the random variable X for which the function mentioned in relation 2 is not a utility function. 3. Consider a decision maker with initial wealth 0 and this decision maker needs to play a lottery L having a random outcome X bounded above by a > 0. This means P(X < a) = 1. Is this decision maker risk averse or risk seeking for this particular lottery? Explain your answer and give the definion of riskaverse and risk seeking! 4. Let a > 0 be given and L a lotery with random outcome X having cumulative distribution function

. Explain the interpretation of a utility function and why such a function should be increasing. is said that the utility function of a decision maker is given by Ua(x) = 2ax – x², x € R for some a > 0.For which lotteries with random outcomes X is the above function a utility function? Explain your answer and give an example of a lottery or specify a distibution of the random variable X for which the function mentioned in relation 2 is not a utility function. 3. Consider a decision maker with initial wealth 0 and this decision maker needs to play a lottery L having a random outcome X bounded above by a > 0. This means P(X < a) = 1. Is this decision maker risk averse or risk seeking for this particular lottery? Explain your answer and give the definion of riskaverse and risk seeking! 4. Let a > 0 be given and L a lotery with random outcome X having cumulative distribution 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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Q5
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4.
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