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1) An individual has a utility function: V(c) = c²/³, for 0 ≤ c≤ 1000. There are two possible states of the world, S1 and S2, with probabilities 1/4 and 3/4, respectively. Her optimal consumption in state S1 is 8, and it is 27 in state S2. Using P₁ = 1 as numeraire. Find P2.

1) An individual has a utility function: V(c) = c²/³, for 0 ≤ c≤ 1000. There are two possible states of the world, S1 and S2, with probabilities 1/4 and 3/4, respectively. Her optimal consumption in state S1 is 8, and it is 27 in state S2. Using P₁ = 1 as numeraire. Find P2.

Advanced Engineering Mathematics
Advanced Engineering Mathematics
10th Edition
ISBN:9780470458365
Author:Erwin Kreyszig
Publisher:Erwin Kreyszig
Chapter2: Second-order Linear Odes
Section: Chapter Questions
Problem 1RQ
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1) An individual has a utility function: V(c) = c²/³, for 0 ≤ c≤ 1000. There are two possible states of the world, S1 and S2, with probabilities 1/4 and 3/4, respectively. Her optimal consumption in state S1 is 8, and it is 27 in state S2. Using P₁ = 1 as numeraire. Find P2.
Transcribed Image Text:1) An individual has a utility function: V(c) = c²/³, for 0 ≤ c≤ 1000. There are two possible states of the world, S1 and S2, with probabilities 1/4 and 3/4, respectively. Her optimal consumption in state S1 is 8, and it is 27 in state S2. Using P₁ = 1 as numeraire. Find P2.
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