Microeconomic Theory
Microeconomic Theory
12th Edition
ISBN: 9781337517942
Author: NICHOLSON
Publisher: Cengage
Question
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Chapter 2, Problem 2.14P

(a)

To determine

The proof of E[g(x)]g[E(x)] (Jensen’s Inequality)

(b)

To determine

The proof of E[g(x)]g[E(x)]

(c)

To determine

The proof of E(x)=0[1F(x)]dx

(d)

To determine

The proof of P(xt)E(x)t (Markov’s Inequality)

(e)

To determine

  1. The proof that f(x)=2x3 for x1 is a proper PDF
  2. F(x) for this PDF
  3. E(x) for this PDF using the result of part (c)
  4. The proof that Markov’s inequality holds for this function

(f)

To determine

  1. The proof that f(x)=x23 for 1x2 is a proper PDF
  2. The value of E(x)
  3. The probability that 1x0
  4. The value of f(x|A) , where A is the event 0x2
  5. The value of E(x|A)
  6. Intuitive explanation of the results

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In class discussions about uncertainty we assumed that the utility levels in each state of nature depends on c, which we might interpret as some aggregate con- sumption and we expressed utility as U(c). Now, let's extend this to a case where the utility level depends on consumption of two goods (this was the type of utility we used mainly in this course). Ben is a farmer who grows wheat and barley. However, his harvest is uncertain. If weather is good, he gets 200 lbs of wheat and 200 lbs of barley. If weather is bad, he gets only 100 lbs of wheat and 100 lbs of barley. His utility in each state of nature is U(w, b) = w¹/46³/4, where w and b represent his consumption of wheat and barley, respectively. Prices of wheat and barley are $1 in both state of nature. The probability of good weather is π. Question 3 Part a Express Ben's expected utility function. (Hint: find Ben's optimal consumption in each state of nature first) Question 3 Part b Let's assume π = 0.5. Knowing that bad weather…
In class discussions about uncertainty we assumed that the utility levels in each state of nature depends on c, which we might interpret as some aggregate con- sumption and we expressed utility as U(c). Now, let's extend this to a case where the utility level depends on consumption of two goods (this was the type of utility we used mainly in this course). Ben is a farmer who grows wheat and barley. However, his harvest is uncertain. If weather is good, he gets 200 lbs of wheat and 200 lbs of barley. If weather is bad, he gets only 100 lbs of wheat and 100 lbs of barley. His utility in each state of nature is U(w, b) = w¹/4b³/4, where w and b represent his consumption of wheat and barley, respectively. Prices of wheat and barley are $1 in both state of nature. The probability of good weather is T. Question 3 Part a Express Ben's expected utility function. (Hint: find Ben's optimal consumption in each state of nature first) Question 3 Part b Let's assume = 0.5. Knowing that bad weather…
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