c. Calculate her Expected Utility EUwork if she works hard. (hint: this will be afunction of the interest i).d. Calculate her Expected Utility EUshirks if she shirks. (hint: this will be a functionof the interest i).e. Write down the condition under which the borrower will work hard.f. No-shirking condition: Manipulating the condition you found in e, find themaximum i for which the borrower is going to work hard. Call this interest i"1.NOTE: i', will be a number. Consider the problem of an entrepreneur/borrower with no money and a project requiring L=200to be carried out. Assume that the borrower cannot use his illiquid assets to finance the project.The entrepreneurOnce the entrepreneur undertakes the project, she decides either to work hard or to shirk.• If she works hard, then she earns a high return R=$500 with probability p=0.75 and earnsnothing with probability (1-p)=0.25.• If she shirks, she earns a high return with probability q=0.25 and earns nothing withprobability (1-q)=0.75.The borrower has ex-post utility u(y)=y-D if she works hard and u(y)=y if she does not workhard, where y is her income (after loan payments) carned from the project. Assume D=125.The bank:A bank is willing to finance the project and lend $200 to the borrower. The bank charges theagent an interest rate of i on the loan.The borrower always repays the loan when she succeeds. If she fails, she is protected by limitedliability: she repays nothing to the bank.Finally, assume that the bank could also purchase $200 in risk-free bonds with a return ofr=0.10, and that the financial markets are perfectly competitive.Section A1: No collateral1. The borrowerSuppose the borrower takes a loan of $200 from the bank. Supposethat the interest rate charged on the loan is i (we'll find i later).a. What is her ex post income yail if she fails? NOTE: I'm asking for realizedincome, NOT utility!b. What is her ex post income ysuceed if she succeeds? (hint: this will be a function ofthe interest i).

The entrepreneur seeks to finance a venture costing $200, where success yields a high return while…

a. What is her ex post income yfail if she fails? NOTE: I'm asking for realized income, NOT utility! b. What is her ex post income ysucceed if she succeeds? (hint: this will be a function of the interest i).

a. What is her ex post income yfail if she fails? NOTE: I'm asking for realized income, NOT utility! b. What is her ex post income ysucceed if she succeeds? (hint: this will be a function of the interest i).

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Q: Refer to the information provided in Figure 6.5 below to answer the questions that follow. Oel's…

A: 23. Given Oels budget constraint CD. If her income increases, Oel can consumer more of both the…

Q: Is it pessible fek matginal utility to be negative and yet tola wWility to be pessitive hy of why…

A: Utility refers to the satisfaction which an individual receive from the consumption of a good, or…

Q: Consider a consumer with preferences represented by the utility function: u (x, y) = x+y a. Draw a…

A: Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts…

Q: Consider the utility function U=10ln⁡x+y. If the price of x is 2 and the price of y is 1, how much…

A: Here we have a quasi linear function:- U=10lnx+y Here we solve for Marshallian demand or ordinary…

Q: 56. When Marginal Utility is positive, Total Utility A. O Increases B. O Decreases C. O Remains…

A: To find: What happens to total utility when marginal utilities will be positive.

Q: Consider the problem of a consumer who must choose between two types of goods, good 1 (x₁) and good…

A: Utility function: u(x1, x2) = x1 + x2 Marginal Rate of substitution = dudx1dudx2= 12x11 Price of…

Q: Adwoa purchases only pasta and salad with her income of ghc 160 a month. Assume the price of pasta…

A: Here we are given consumer's budget which includes price of both the goods and the income. And hence…

Q: If a consumer starts at point A, and then receives an income in current income, this would appear as…

A: Budget constraint refers to a a graphical representation of all possible combination of two goods…

Q: 6. Imagine you have a quasi-linear utility function given be U=x-0.03r²+y. Please show your work on…

A: Since we answer a maximum of 3 subparts, a-c will be answered here. Please re-upload the question…

Q: ion 8 (Utility). Suppose a consumer's utility function is given by U(x₁, x2)=X₁*X2 a) Draw an…

A: Introduction An indifference curve (IC) is a mathematical representation of a collection of products…

Q: Suppose Ming spends his entire income on two goods, X and Y, has "standard-looking" indifference…

A: Here, the information is given about Ming who spends his income on two goods, X and Y, and the price…

Q: The consumer is in equilibrium at a point where the budget line

A: Consumers are balanced at the intersection of the budget lines.

Q: Study the following indifference curve graph below and answer question that follows: Figure 1 Income…

A: An indifference curve can be defined as a graphical representation of a combined items that provides…

Q: Which of the following is NOT the goal of the consumer? O be on the highest indifference curve spend…

A: ‘Utility’ refers to the satisfaction, which a consumer derives from consuming a good. Marginal…

Q: Suppose Ming spends his entire income on two goods, X and Y, has "standard-looking" indifference…

A: An indifference curve is a graphical representation of the level of utility that a consumer derives…

Q: Please read the article: Utility of Marriage 1. What is the law of diminishing marginal utility? 2.…

A: Please read the article: Utility of Marriage 1. What is the law of diminishing marginal utility? 2.…

Q: Which utility function represents quasi-linear utility function in y. A. U = x^2+y B.U=X+Y…

A: A quasi-linear utility function is a type of utility function where the marginal utility of one good…

Q: a) Chika has calculated the marginal utility that she derives from her paid employment and from…

A: Marginal utility represents the additional satisfaction obtained from consuming an additional unit…

Q: What can be the implications of a positively sloping indifference curve?

A: Indifference curves are those curves that represent combinations of two goods that give the same…

Q: 37. The consumer is in equilibrium at a point where the budget line

A: Consumer equilibrium is the point where consumer achieves maximum utility.

Q: Please do it in 10 minutes will upvote

A: Since you have asked multiple question, we will solve the first question for you. If you want any…

Q: explain the principles, concepts , and theories underlying individual cosumers beahvaiour with…

A: A rational consumer is going to be in equilibrium when his utility is maximized within a given…

Q: Pls help with thsi question I am stuck Given the image attatched: 1.Given the above Marginal…

A: Optimal consumption bundle: The optimal consumption bundle is such that at that bundle the…

Q: Sam's utility function is x2 + y, her income is 3, the price of x is 2, and the price of y is 1. (a)…

A: a. Given the income, M = 3 Price of x, Px = 2 Quantity of x = x Price of y, Py = 1 Quantity of y = y…

Q: a) Show that the utility function is strictly increasing in x1 and x2. b) For a given level of…

A: Utility is the total satisfaction derived from consumption of goods available in the economy. The…

Q: MUJ If the current bundle of food (f) and clothing (c) to be purchased by a consumer is such that Pf…

A: Utility maximizing consumption bundle is when marginal utility per dollar spent on the good is equal…

Q: What does point D on this graph represent? O An optimal choice O A choice on the budget constraint O…

A: An indifference curve is a graphical depiction of alternative pairings of two items that offer a…

Q: What does the law of equi marginal utility states? MU. MU, MU, Px P₂ P₂ MU₂ x P = MU₂ x P₂ =MU₂ x P₂…

A: The principle of equi-marginal utility in economics suggests that a rational consumer distributes…

Q: The primary goal of very consumer is to maximize satisfaction. Explain, how a consumer achieves…

A: In economics, it is assumed that consumers are rational and they try to maximize their utility.…

Q: (g) Show that, if M falls to $1034, with Px = 8 and Py = 5, then this has the same utility as the…

A: From part d: The optimal demand equation for good X is X=2M3Px .....(1) The optimal demand…

Q: whitity function O Ue total derivat ive to ferive Mes ŏ let a (2,, Xx)=x,+22,, be gmasther uEility…

A: Given Utility function ux1,x2=x1+2x22 ........... (1) We know that MRS=MUx1MUx2

Q: U = 340x1 +960x2 + 2x1x2 – 2x – /2, when the weekly amount of leisure is x1 = 132 and earned income…

A: Since you have posted a question with multiple subparts, we will solve only first three subparts for…

Q: Sanjana loves to read books(B) and likes to watch movies(M) as well. She derives double the…

A: The two goods are substitutes when only one of them is consumed. Linear utility function shows goods…

Q: Kayla's utility function is u= 7ln(z) + z2. If z is plotted on the horizontal axis and ay on the…

A: Correct : B. -7/x1

Q: y of the third Pepi is Me Chice uns of uty 6 unts of uly urof y 27utofy

A: In economics, utility is the satisfaction or benefit derived by consuming a product; thus the…

Question

c. Calculate her Expected Utility EUwork if she works hard. (hint: this will be a
function of the interest i).
d. Calculate her Expected Utility EUshirks if she shirks. (hint: this will be a function
of the interest i).
e. Write down the condition under which the borrower will work hard.
f. No-shirking condition: Manipulating the condition you found in e, find the
maximum i for which the borrower is going to work hard. Call this interest i"1.
NOTE: i', will be a number.

Consider the problem of an entrepreneur/borrower with no money and a project requiring L=200
to be carried out. Assume that the borrower cannot use his illiquid assets to finance the project.
The entrepreneur
Once the entrepreneur undertakes the project, she decides either to work hard or to shirk.
• If she works hard, then she earns a high return R=$500 with probability p=0.75 and earns
nothing with probability (1-p)=0.25.
• If she shirks, she earns a high return with probability q=0.25 and earns nothing with
probability (1-q)=0.75.
The borrower has ex-post utility u(y)=y-D if she works hard and u(y)=y if she does not work
hard, where y is her income (after loan payments) carned from the project. Assume D=125.
The bank:
A bank is willing to finance the project and lend $200 to the borrower. The bank charges the
agent an interest rate of i on the loan.
The borrower always repays the loan when she succeeds. If she fails, she is protected by limited
liability: she repays nothing to the bank.
Finally, assume that the bank could also purchase $200 in risk-free bonds with a return of
r=0.10, and that the financial markets are perfectly competitive.
Section A1: No collateral
1. The borrower
Suppose the borrower takes a loan of $200 from the bank. Suppose
that the interest rate charged on the loan is i (we'll find i later).
a. What is her ex post income yail if she fails? NOTE: I'm asking for realized
income, NOT utility!
b. What is her ex post income ysuceed if she succeeds? (hint: this will be a function of
the interest i).

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1: Introduction to question

VIEW

Step 2: Calculation and Answers for Parts a, b, c, and d

VIEW

Solution

VIEW

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

Dear Expert Hand written solution is not allowed
Typed and correct answer please. I will rate accordingly. Please do it correct. Most impo
Maya divides her income between coffee andcroissanls (both of which arc normal goods). An earlyfrost in Brazil causes a large increase in the price ofcoffee in the U nitcd Stites.a. Show the eflcct ol the frost on Maya's budgetconstraint.b. Shm" the effect ol the frost on Maya's optinu,loonsumption bwl<ile assunling that the substitutioneflcct outweiglls the income effect for croiss:mls.c. Show the eflcct of the frost on Maya's optimalconsumption bw,dle assuming that the incomeeffect outweighs the substitution effect forcroissants
solutions. Question 1 Calculating MRS for CD Utility Functions (a) If a consumer has a CD utility function 0.4 0.6 U(91,92) = 994926, calculate MRS1,2. (b) If a consumer has a CD utility function Ima kdown1 calculate MRS1,2. (c) If a consumer has an utility function noltan asd Tor sympy ,1-α U(91,92) = 91 92 llib et (.) orde (hing aid tol bholup U(91,92) = a ln(91) + (1 - a) ln(92), diw sonuanos of calculate MRS1,2. Is it the same as the result in the previous part? (Note: Recall that we discussed the concept of ordinal utility in class, which means only the order of utility matters, not its magnitude. In function is a monotone transformation on the CD utility function. Notice that In (qq) = a ln(9₁) + (1 - a) ln(92). This example verifies that a monotone transformation does not change *(S) sidshav the consumer's indifference curves.) wobei/ (d)
Please by your own words
i need the answer quickly
pls solve asap
12 2 4 6 8 Water (bottles per day) The figure above shows three of a consumer's indifference curves. Which point is most preferred? Point Conly Point Gonly Point Jonly Points Cand G are tied for the most preferred. More information is needed to determine which point is most preferred. 2.
ê Suppie Concumer bes a utility function 4 x, (x,+2=) and facer a M. 'Derive and giet ber dem and for goed 2.
Q43