Consider the lottery that assigns a probability T of obtaining a level of consumption CH and a probability 1-7 of obtaining a low level of consumption cL with CH > CL. Consider an individual facing such a lottery with utility function u(c) that has the properties that more is better (that is, a strictly positive marginal utility of consumption at all levels of c) and diminishing marginal utility of consumption, u"(c) < 0. As usual, we are using the shorthand u'(c) dhue for the first derivative of the utility function with respect to dc du(c) dc2 du' (c) consumption and u"(c) = to be the second derivative of the utility function dc (which is also the derivative of the first derivative of the utility function)

Consider the lottery that assigns a probability T of obtaining a level of consumption CH and a probability 1-7 of obtaining a low level of consumption cL with CH > CL. Consider an individual facing such a lottery with utility function u(c) that has the properties that more is better (that is, a strictly positive marginal utility of consumption at all levels of c) and diminishing marginal utility of consumption, u"(c) < 0. As usual, we are using the shorthand u'(c) dhue for the first derivative of the utility function with respect to dc du(c) dc2 du' (c) consumption and u"(c) = to be the second derivative of the utility function dc (which is also the derivative of the first derivative of the utility 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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