Consider three individuals whose futility functions are: U₁= wa (where 0 < a < 1), U₂ = log(w) and U₁ = log (w'). Let the three individuals' measures of absolute risk aversion be R₁, R2 and R3. Which of the following statements is correct? (a) R₁ R₂ R3 (b) R₁ R2 R3 (c) R3 > R₁ > R2 (d) R₁ < R₂ = R3 (e) R₂ > R₁ R3
Q: 3. (This is question 2, page 437 of the textbook) An economy is described by the following…
A: IS curve shows equilibrium in the goods market and LM curve shows equilibrium in the asset market.…
Q: a) If price is $9, which of the following is true? O. 1) The firm is earning a negative profit, but…
A: A perfectly competitive firm will produce where P = MC P is the market price MC is the marginal…
Q: What are the important administrative considerations in the capital budgeting process? Discuss one…
A: The method through which a business analyses potential large projects or investments has been…
Q: A monopolist who is able to practice perfect price discrimination Question 10 options: a)…
A: In case of monopolist , Under perfect price discrimination The firm will charge the consumer's…
Q: The Fed has conducted expansionary monetary policy to combat a recession but is running up against…
A: An expansionary monetary policy basically refers to a type of macroeconomic monetary strategy that…
Q: Assume that Country D is in a recession. 1. What fiscal policy actions would combat the recession?…
A: A recession is defined as a lengthy period of weak or negative growth in real GDP (output)…
Q: On the graph below, the consumer begins at L1. The relative prices change to L2. Complete the table…
A: Substitution effect: The decrease in consumption of the good due to price fall of other goods Income…
Q: Question 6 What is a common discouragement to international business? O The reason is that in the…
A: International business refers to the transactions or buying and selling of goods and services…
Q: What is the significance of the concept of rational ignorance? Question options: It explains…
A: Voting is a method of determining the decision of the majority of people. Voting may give…
Q: In this table, the fixed cost of production is:
A: Costs of production, which comprise expenses of many kinds, are incurred during the production of…
Q: he economy of a country is a three-sector economy. Its public consumption follows the function: C…
A: Given Consumption function: C=400+0.8Yd Investment I=250 trillion Government spending G=IDR 700…
Q: Environmental health is what
A: Public health is a discipline that deals with the concepts, terminologies and activities related to…
Q: Product Milk Textbook Wheat Quantity in 2020 100 50 80 Price in 2020 2 50 3 Using 2020 as the base…
A: The real economic growth rate, or real GDP growth rate, estimates economic growth, as expressed by…
Q: Suppose that in 2009 the money supply in Nickeltown was equal to $2000, velocity was 4, and the…
A: Real GDP is a macroeconomic statistic that measures the value of goods and services produced by an…
Q: 6. Changes in taxes The following graph plots an aggregate demand curve. Using the graph, shift the…
A: Aggregate Demand: It demonstrates a negative link between the price level and GDP, and hence the…
Q: John works for a government agency in California making $70,000 per year. He is being transferred to…
A: Given : * Annual salary in California = $70,000 per year * Annual salary in Tennessee =…
Q: If you were asked to choose a pair of effects that would have the greatest expansive effect on the…
A: Economic growth and development are the two major components that every economy in the world is…
Q: Drug formularies Help manufacturers determine which drugs are efficacious Help salesmen determine…
A: Drug Formularies are referred to as a list of prescription drugs that are opted for or preferred by…
Q: You have $25,000 in an account that pays 6% interest compounded annually. You want to make equal…
A: Deposit in Year 1 = $25000Annually compounded interest rate = 6%Duration = 8 years
Q: If a company purchases an equipment for $P and uses it for N years, and the compaany's MARR is i%,…
A: Present value is the value of investment in today's dollar. Future value is the value of investment…
Q: The Learning curve is a complement of the Improvement Curve Learning Curve + Improvement Curve=…
A: The learning curve is a downward-sloping curve. The number of repetitions or quantity of output is…
Q: Find the amount needed to be invested now to accumulate the following amount if the money is…
A:
Q: Given equation and questions I need answered are attached. Below are the answers to previous…
A: Given information: Q = 220 - P ---------> Demand equation STC = 1000 + 80Q - 3Q2 + (1/3)Q3…
Q: If demand is P = 100 - 2Q and supply is P = 20 + 3Q, what is the value of the Producer Surplus?…
A: A producer surplus may be defined as the difference between the price at which a seller is willing…
Q: Suppose that for a monopolist, MR=MC=$10 and P=$15 at the profit-maximizing level of output. At this…
A: Profits are the monetary value that a firm earns above the total cost.
Q: You are the manager of a monopoly. A typical consumer's inverse demand function for your firm's…
A: In a two-part pricing strategy, the monopoly firm charges a fixed lum-sum fee along with per unit…
Q: a) Which of the follwing monetary policy actions can be used to close an inflationary gap? O No…
A: “Since you have asked multiple questions, we will solve the first question for you. Please specify…
Q: uppose a consumer’s preferences for goods Y and X can be represented by the utility function,…
A: A rational consumer will consume where the MUx/MUy = Px/Py Here , MUx is the Marginal utility's of…
Q: Assume that a noncompetitive firm's short run production function relates the level of output to…
A: Part a Calculating the firm’s profit maximizing price and output as well as employment:…
Q: An increase in the income tax rate (fiscal policy) will have no impact on the level of output or…
A: The proportion of household and business income that the government collects in taxes is known as…
Q: There are two alternatives P,M. With 15% MARR under 20 years study period, which alternative should…
A: Present value is the value of investment in today's dollar. Future value is the value of investment…
Q: Assume perfect competition: Price: $48 Cost: TC = 5Q + 0.02Q² Solve for the profit-maximizing…
A: For a perfectly competitive corporation to maximise profits, the marginal cost and marginal income…
Q: Required Information For the five Independent projects given, the capital budget limit is $120,000,…
A: Present value is the value of investment in today's dollar. Future value is the value of investment…
Q: Year Units of Output Price per unit 8 1 2 3 4 5 If year 2 is the base year, what is the consumer…
A: CPI is the consumer price index. CPI is calculated by dividing the cost of market basket in base…
Q: Using the following information, calculate the Net Value Added at Factor Cost. Sales 25000 Excise…
A: Net value added at factor cost measures the cost of using various factors of production by the firm…
Q: NAME Megan Schuyler (2) Due 12/3/2022 Show work for credit! The demand for product Q is given by…
A: TR(Total revenue )is the amount that the seller earns by selling their product.TC(Total cost )is the…
Q: The market basket used to calculate the CPI in Aquilonia is 4 loaves of bread, 6 gallons of milk, 2…
A: [Dear student , as you have posted multiple questions , we are supposed to do only the first…
Q: If there were 20 firms in this market, the short-run equilibrium price of rhodium would be per…
A: In economics, competition is a situation where different economic firms are in contention to obtain…
Q: 2. You have been asked to perform a sensitivity analysis on a plant modernization plan. The initial…
A: Initial Investment = 30000 Annual Savings = 13000 Useful life = 7 Salvage Value = 7000 MARR = 12%…
Q: A bond has a face value of $1,000 and an annual interest payment of $44. What i is sold for $1,100…
A: A bond can yield a capital gain or a loss to its holder.
Q: Suppose that the production function for an economy is given by Y = K1/4L3/4. The depreciation rate…
A: Solow growth model is used to analyze the changes in the output level over time as a result of…
Q: 2. A monopolist sells tours of a stately Montana home to two groups of consumers, Montanans (M) and…
A: The monopolists are the sellers that maximize their profit at the point when the marginal cost is…
Q: Alpha Industries is considering a project with an initial cost of $7.5 million. The project will…
A: Given,Initial Cost = $7.5 millionCash Inflow = $1.55 millionTime = 7 yearsPretax Cost of Debt =…
Q: The terms spillover or externality refer to__ A) black-market economic activity. B) the impact on…
A: The phenomena in which one party's activities have unexpected effects for a third party who is not…
Q: 13. A monopolist faces a constant marginal cost of $1 per unit and has no fixed costs. If the price…
A: A monopolist means an individual, or organization that overwhelms and controls the market for…
Q: Network Externalities A. Explain why switching costs fall as the size of a network increases B. Are…
A: Network externality describes the situation where the value of a product or service depends upon the…
Q: The following graph illustrates the market for small moving trucks in Bloomington, IN, during…
A: Perfect Competition This kind of market structure implies a market that consists of a large number…
Q: c. If government purchases increase to 450, what is the new equilibrium income? What is the…
A: Given Consumption expenditure C =140+0.75(Y-T) .....(1) Planned investment I=300…
Q: 4. The government pushes the unemployment rate down 4 percentage points below the natural rate.…
A: Given information The current unemployment rate is 4% below the natural unemployment rate. Beat=1/2…
Q: A natural monopoly exists when Question 3 options: a) the product is sold in its natural…
A: Natural Monopoly: A natural monopoly exists when it is most efficient to have single firm operating…
course: advanced
Step by step
Solved in 3 steps
- Mr. Smith can cause an accident, which entails a monetary loss of $1000 to Ms. Adams. The likelihood of the accident depends on the precaution decisions by both individuals. Specifically, each individual can choose either “low" or "high" precaution, with the low precaution requiring no cost and the high precaution requiring the effort cost of $200 to the individual who chooses the high precaution. The following table describes the probability of an accident for each combination of the precaution choices by the two individuals. Adams chooses high precaution Adams chooses low precaution Smith chooses low precaution 0.8 0.5 Smith chooses high 0.7 0.1 precaution Question: For each of the following tort rules, (i) construct a table describing the individuals’ payoffs under different precaution pairs and (ii) find the equilibrium precaution choices by the individuals. a) No liability b) Strict liability (with full compensation) c) Negligence rule (with efficient legal standard of care) d)…Cost-Benefit Analysis Suppose you can take one of two summer jobs. In the first job as a flight attendant, with a salary of $5,000, you estimate the probability you will die is 1 in 40,000. Alternatively, you could drive a truck transporting hazardous materials, which pays $12,000 and for which the probability of death is 1 in 10,000. Suppose that you're indifferent between the two jobs except for the pay and the chance of death. If you choose the job as a flight attendant, what does this say about the value you place on your life?Question 6 Which of the below indifference curve correspond to the highest risk aversion? E(r) .60 .40 .20 .09 .05 0 D and C B and A .10 .20 .30 .40 .5 D C B A
- Y5 Alfred is a risk-averse person with $100 in monetary wealth and owns a house worth $300, for total wealth of $400. The probability that his house is destroyed by fire (equivalent to a loss of $300) is pne = 0.5. If he exerts an effort level e = 0.3 to keep his house safe, the probability falls to pe = 0.2. His utility function is: U = w0.5 – e where e is effort level exerted (zero in the case of no effort and 0.3 in the case of effort).a. In the absence of insurance, does Alfred exert effort to lower the probability of fire?HINT: Calculate and compare the expected utility i) with effort, and ii) without effort. If effort is exerted, then the effort cost is paid regardless of whether or not a fire occurs.b. Alfred is considering buying fire insurance. The insurance agent explains that a home owner’s insurance policy would require paying a premium α and would repay the value of the house in the event of fire, minus a deductible “D”. [A deductible is an amount of money that the…(Derive the coefficients of absolute and relative risk aversion of the following functions, and point out th conditions to make each function increase and concave: (а) и (х) —х- (b/2)x2 (b) µ (x) = (B/(B –- 1))x!-1/B (c) µ (x) = (1/ (B – 1)) [A +Bx]'¬1/BAn agent makes decisions using U(ct) = (ct−χct−1)1−γ 1−γ . Answer the following: (a) Suppose χ = 0. Derive an expression for the coefficient of relative risk aversion RR(ct)? (b) Suppose 0 < χ ≤ 1. Derive an expression for the coefficient of relative risk aversion RR(ct)?
- Suppose that a car - rental agency offers insurance for a week that costs $125. A minor fender bender will cost 34000 whereas a major accident might cost $16 comma 000 in repairs. Without the insurance, you would be personally liable for any damages. There are two decision alternatives: take the insurance, or do not take the insurance. You researched insurance industry statistics and found out that the probability of a major accident is 0.04% and that the probability of a fender bender is 0.18%. The expected payoff if you buy the insurance is $125.00. The expected payoff if you do not buy the insurance is $12.52. Develop a utility function for the payoffs associated with this decision for a risk-averse person. Determine the decision that would result using the utilities instead of the payoffs. Based on the expected payoffs, the best decision is to not purchase the insurance. Are these two decisions consistent?Say there are two individuals; Hala and Anna who are deciding on either to buy health insurance on a pooling arrangement basis or otherwise. Both face a 30% probability of losing RM40 on medical services and 70% of losing nothing. With these information discuss whether Hala and Anna should join this arrangement or pay the medical services costs out of their own pocket money.(Fill in the 4 blanks.) A monthly pass for the Stockholm subway costs $100, and fare dodgers who are caught face a fine of about $160. Stockholm transport has increased the number of ticket checks conducted, and the probability of being caught while riding the subway without paying is now 1%. Liam rides the subway 50 times a month, so that each month the probability that he is caught equals 50 x 1% = !3! 50% and he expects to pay 50 (0.01 x $160) = $80 in fines each month he rides the subway without buying the monthly pass. If Liam does not purchase a monthly pass, his expected monthly savings are $ (accepted format is dollars and cents xXx.xx). Liam's utility of saving $S equals VS , so that if he does not purchase a monthly pass, his expected utility equals (round to 2 decimals: xxx.xx). Liam's certainty equivalent is savings equal to $52.42, and thus Liam's (do not capitalize your answer and make sure to spell correctly) is $7.58. Liam can purchase full insurance from Planka.nu,…
- Faris Co. and Fahad Co. are rivalry in Bahrain's market. Suppose the payoff to each of four strategic interactions are as follows: Faris Co. Response Action Reduce Price Don't Reduce Price Gain = BD 30,000 Reduce Price Loss = BD 1,000 Don't Reduce Price Loss = BD 5,000 No loss or gain The probability of Faris Co. to reduce price is 95 % (otherwise, probability of Faris Co. for not reducing price is 5 %), assume that Fahad Co. choose "reduce price" strategy a. What is size of loss from "reduce price" for Fahad Co.? b. What is size of gain from "don't reduce price" for Fahad Co? c. What is the expected payoff of a "reduce price" for Fahad Co.? and give an example (application) of d. Explain the concept of 'game theory' game theory Fahad Co. ResponseConsider the St. Petersburg Paradox problem first discussed by Daniel Bernoulli in 1738. The game consists of tossing a coin. The player gets a payoff of 2^n where n is the number of times the coin is tossed to get the first head. So, if the sequence of tosses yields TTTH, you get a payoff of 2^4 this payoff occurs with probability (1/2^4). Compute the expected value of playing this game. Next, assume that utility U is a function of wealth X given by U = X.5 and that X = $1,000,000. In this part of the question, assume that the game ends if the first head has not occurred after 40 tosses of the coin. In that case, the payoff is 240 and the game is over. What is the expected payout of this game? Finally, what is the most you would pay to play the game if you require that your expected utility after playing the game must be equal to your utility before playing the game? Use the Goal Seek function (found in Data, What-If Analysis) in Excel.Shimadzu, a manufacturer of precise scientific instruments, relies heavily on the efforts of its local salespeople. Selling an instrument requires either luck, high effort, or some combination of the two. A salesperson who chooses to work hard (put in high effort) has a 40 percent chance (probability of 0.4) of selling an instrument in a given year while a salesperson who chooses to slack off (put in low effort) has a 20 percent chance (probability of 0.2) of making a sale. Practically no one manages to sell more than one instrument in a single year. Contracts for salespeople are designed on a year-by-year basis. Sales staff members do not mind risk; they choose employers based only on expected wage and the disutility of effort. Disutility of effort is equivalent to $20,000 per year if they work hard and $0 if they slack off. Even if a salesperson slacks off, he or she requires a salary of at least $50,000 not to seek alternate employment. (So, the worker's net payoff in alternative…