The graph illustrates the utility functions for both Rashawn and Juliana, who both have the same amount of wealth.RashawnUtilitya. Who is more risk-averse?NeitherJuliana's utilityRashawn's utility$3,000 Initialloss wealth$10,000gainStevenson/Wolfers, Principles of Economics, 1e, © 2020 WorthPublishersWealthJulianaIt is impossible to tell, based on the information.

Risk-averse refers to the individual who is reluctant to take more risks and gets more return while…

The graph illustrates the utility functions for both Rashawn and Juliana, who both have the same amount of wealth. Rashawn Utility a. Who is more risk-averse? Neither Juliana's utility Rashawn's utility $10,000 gain $3,000 Initial loss wealth Stevenson/Wolfers, Principles of Economics, 1e, 2020 Worth Publishers Wealth Juliana O It is impossible to tell, based on the information.

The graph illustrates the utility functions for both Rashawn and Juliana, who both have the same amount of wealth. Rashawn Utility a. Who is more risk-averse? Neither Juliana's utility Rashawn's utility $10,000 gain $3,000 Initial loss wealth Stevenson/Wolfers, Principles of Economics, 1e, 2020 Worth Publishers Wealth Juliana O It is impossible to tell, based on the information.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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4. Kate has von Neumann-Morgenstern utility function U(x1,x2) = m7. She currently has $2025. a. Would she be willing to undertake a gamble that involves a gain $2875 with probability + and a loss of $1125 with probability ? Show your work and explain your answer. b. Would she be willing to undertake a gamble that involves a gain $2599 with probability and a loss of $800 with probability ? Show your work and explain your answer.
Suppose that 20 risk neutral competitors participate in a rent seeking game with a fixed prize of $500. Each player may invest as much money as he wishes in the political contest. The probability of winning is directly proportional to the candidate's share of the total rent-seeking investment. 1. What is the expected net benefit of a player if all other players invest $20 each? Write the net benefit as a function of the player's investment. 2. Solve the maximization problem to arrive at the profit-maximizing investment. Round to the nearest cent.
In 150 words
A. From the graph below explain how an insurance plan which provides the buyer a $15,000 wealth level, regardless of any uncertain event, is a good deal for the buyer? In other words, what does the distance between points D’ and C’ represent? Note we are referring to D prime, not D. B. Considering the graph below, can you explain the difference between expected utility and certainty utility?
Are the following preferences consistent with von Neumann Morgenstern’s axioms to maximize expected utility? Explain. a. You would rather have a sure $200 to a gamble with p=0.7 chance of $200, p=0.1 chance of $50, p=0.2 chance of $300. b. You prefer the gamble of p=2/3 chance of $300 and p=1/3 chance of $50 than a sure $250 win.
Who is most risk-averse? a-an individual with slightly diminishing marginal utility. b-all individuals are equally risk-averse. c-an individual with rapidly diminishing marginal utility. d-an individual who does not experience diminishing marginal utility.
ASAP Suppose that Elizabeth has income of £100 but there is a chance of 1/3 that she may lose 80 of that in a car accident. What are the states of nature? Represent the graph of the contingent commodities and show her endowment point. Suppose that she is risk averse and that she can buy insurance at a premium of 0.5 per unit of cover. Show the fair odds line and her indifference curves on the graph. Can you say anything about the amount of cover she will buy?
E2
Economics 2. Suppose that a farmer usually makes profit of $120,000 per year. Let's say that there is a 2% chance that a tornado will hit the farm. This would strongly hurt farmer's profit, leading to losses of $96,000 with 2% probability. a. What is the actuarially fair insurance? b. Assume that the farmer utility is given by u = 7 0.5 where 7t represents profit. What is the farmer's expected utility with no insurance? c. How much would the farmer be willing to pay to have insurance? d. Assume that the farmer expects that the tornado's effect to your farm is lower, only leading to losses of $70,000. i. What is the actuarially fair insurance? ii. What is the farmer's expected utility with no insurance? iii. How much would the farmer be willing to pay to have insurance? iv. What is the risk premium?
5. Understanding risk aversion Suppose your friend Juanita offers you the following bet: She will flip a coin and pay you $1,000 if it lands heads up and collect $1,000 from you if it lands tails up. Currently, your level of wealth is $3,000. The graph shows your utility function from wealth. Use the graph to answer the following questions. UTILITY (Units of utility) 100 90 80 70 60 50 40 30 20 10 0 0 A+ C B WEALTH (Thousands of dollars)