(b)Let the utility of two alternatives i € {1, 2} be U₁ = V₁ + €₂. Where, U; is theperceived ultility, Vi is the measured utility and €; is the random randoum variable of alternative i. Assuming V₁ = -7.2 and V₂ = -5.0, under what conditions will the alternative ichosen. Select all that apply.=2 beb. 1 - 2 < 2.1b. 1 - 2 < 3.1b. 1 - 2 < 1.1Od. All of the above

A utility function is an expression through which consumer satisfaction level is measured for any…

Answered: (b) Let the utility of two alternatives…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Becky is deciding whether to purchase an insurance for her home againtst burglary. the payoff for her is shown as follow: Net worth of her Net worth of her home: $ 20000 burglary(10%) Net worth of her Net worth of her home: $50000 burglary (90%) The insueance would cover all the loss from burlary and the insurance fee is $8000. Her utility funtion is given as u=w ^0.3 Should Beck purchase the insurance Explain.
EXAMPLE 18.3 Micro Pizza Heater: Market Demand A factory renovation is needed to build a compact microwave with a new shape, which will be called the Micro Pizza Heater. The low sales-volume prediction (20,000 heaters per year) has a subjectively estimated probability of 30%. The most likely market prediction is 30,000 units sold per year. The optimistic market prediction (30,000 sold the ﬁrst year, with annual increases of 5000) has a subjectively estimated probability of 10%. In all cases, the factory equipment and the market will last 5 years. The net revenue will be $10 per microwave. What is the probability distribution for the net revenue?
5 players must simultaneously choose a number from the interval [0, 9]. Let xi denote the number chosen by player i; x = (x1, . . . , x5) all the selected numbers; x−i = x\xi all the selected numbers except the one chosen by player i. If player i chooses the number xi ∈ [0, 9], while the others choose numbers x−i, then the utility of player i is given by ui(xi, x−i) = 4(9 − xi) + 2Σ5 j=1 xj. Find the Nash equilibrium of the game and the corresponding utilities. Would all players be better off if they signed a binding contract before the game, obligating them to choose the number 9?
- = £200 in a Consider Luna who is facing the following gamble. With probability p = ½½ she will end up in a "bad state" and consume x1 = £10 and with probability 1 p = ½ she will consume xg "good state". Luna's utility can be represented as u (xi) = ln (x;), where i b, g. Suppose there is an insurance contract available to Luna offering K units of insurance for a premium of K. Which statement is true? A. After purchasing the insurance contract which maximises Luna's expected utility, she will enjoy £31 in the bad state and £186 in the good state. B. Luna will not purchase any insurance at the proposed rate. C. The insurance rate is actuarially fair. D. After purchasing the insurance contract which maximises Luna's expected utility, she will enjoy £40 in the bad state and £190 in the good state. E. Luna's optimal insurance contract involves purchasing at least K : = £40 of insurance.
St. John's Brewery (SJB) is getting ready for a busy tourist season. SJB wants to either increase production or produce the same amount as last year, depending on the demand level for the coming season. SJB estimates the probabilities for high, medium and low demands as 0.2, 0.3, and 0.5 respectively, on the basis of the number of tourists forecasted by the local recreational bureau. If SJB increases production, the expected profits corresponding to high, medium and low demands are $750,000, $325,000 and $100,000 respectively. If SJB does not increase production, the expected profits are $450,000, $325,000 and $150,000 respectively. (NOTE: Text answers are case sensitive and the value of different parts of this question is indicated in square brackets [*/*]) Construct a decision tree for SJB. On the basis of the EV, what should SJB do? What is the expected value of increasing production? What is the expected value of not increasing production? Should SJB increase production (enter…
The following table shows cost payoffs for four decision variables and four states of nature. S₁ S2 di 20 20 S S3 54 8 19 4 d2 12 12 40 d3 10 10 16 16 16 d4 30 30 25 20 20 9 110 14 14 Suppose the decision maker assigns the probability for S₁ = 0.10; S2 = 0.40; S3 = 0.20; and S4 = 0.30, what is the expected value of best decision? 21.2 21.8 20 19.2
Assume that 5% of the people who receive Treatment A die. The sixty percent who fully recover live another 10 years. The treatment is only partially successful for 35% of the patients, who live another 4 years. What is the expected value of Treatment A, expressed as additional years of life?
Thelma is indifferent between $100 and a bet with a 0.6 chance of no return and a 0.4 chance of $200. If U(0) = 20 and U(200) = 220, then U(100) = :
c and d please!!
. If you examine the decision tree in Figure 9.12 (orany other decision trees from PrecisionTree), you willsee two numbers (in blue font) to the right of each endnode. The bottom number is the combined monetaryvalue from following the corresponding path throughthe tree. The top number is the probability that thispath will be followed, given that the best strategy isused. With this in mind, explain (1) how the positiveprobabilities following the end nodes are calculated,(2) why some of the probabilities following the endnodes are 0, and (3) why the sum of the probabilitiesfollowing the end nodes is necessarily 1.
Emma has a utility functionU(x1, x2, x3) = logx1+ 0.8logx2+ 0.72logx3 incomes x1 , x2, x3 in the next three years. This is an example of (A) expected value; (B) quasi-hyperbolic utility function; (C) standard discounted utility; (D) none of the above.
answer this properly, remember (0.35x50)+(0.65x10)=£24 here

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