Currently earning an income

Assignment Help Microeconomics
Reference no: EM13912293

Suppose that John is currently earning an income of $10,000 (I = 10) and can earn that income next year with certainty. He is offered a chance to take a new job that offers a .5 probability of earning $16,000, and a .5 probability of earning $5,000.

1) Should he take the new job if is a risk neutral agent?

2) Suppose that in fact his utility function is u(y) = y0.5. Should he take the new job? Is John risk loving, risk neutral, or risk averse?

3) Would John be willing to buy insurance to protect against the variable income associated with the new job? If so, how much would he be willing to pay for that insurance? (Hint: What is the risk premium?)

4) According to Prospect Theory explain how John will make a decision?

Reference no: EM13912293

Questions Cloud

Refer to the campbell soup company annual report : Refer to the Campbell Soup Company annual report for 2011 in the appendix or to the most recent full annual report that you have downloaded from Campbell's website.
Determine value of qatars import of food from gcc countries : Your research is to determine if the value of Qatar's import of food from other GCC countries (KSA, UAE, Bahrain, Kuwait, and Oman) depends on Qatar's GDP, the GDP of the trading partners.
Prepare a contribution margin format income statement : Prepare a contribution margin format income statement; answer what-if Questions. Shown here is an income statement in the traditional format for a firm with a sales volume of 15,000 units:
Market price range of common stock : This problem is based on the 2011 annual report of Campbell Soup Company in the appendix. Find in the Selected Financial Data (also known as the Five Year Review), or calculate, the following data:
Currently earning an income : Suppose that John is currently earning an income of $10,000 (I = 10) and can earn that income next year with certainty.Should he take the new job if is a risk neutral agent.
What is the history of the pcaob and what is its role today : What other governing bodies are used in accounting to oversee fraudulent matters? How does the PCAOB work with these other bodies?
Is historic cost the best model for financial reporting : How significant is the cumulative impact of modest inflation rates that accompany normal economic growth on the financial statements of companies that hold long-lived assets?
Annual report of campbell soup company : This problem is based on the 2011 annual report of Campbell Soup Company in the appendix.
What is the chance that the person has the disease : Suppose that 10% of a given population has benign chronic flatulence. Suppose that there is a standard screening test for benign chronic flatulence that has a 90% chance of correctly detecting that one has the disease, and a 10% chance of a false ..

Reviews

Write a Review

 

Microeconomics Questions & Answers

  Estimate the regression model using the ols estimator

Estimate the regression model (E) using the OLS estimator and provide a summary report of the result (i.e., the estimated equation with the standard errors and/or t-ratios with other relevant statistics).

  What price will the firm be able to charge if it produces

What price will the firm be able to charge if it produces 20 units and how many units will the firm sell if it charges a price of $70?

  Total profits across the market

In a short run condition in which quantity demanded equals quantity supplied in a competitive industry, with value greater than the average cost of the typical company,

  How to calculate the total cost of production

Fixed cost of production are $6 and the variable cost per unit of labor is $10. The marginal product of the seventh unit of labor is 4. Given this information. what is the total cost of production when the firm hires 7 workers.

  Is the flexible land-rent function more or less steep

As the flexible farmer approaches the marketplace, the farmer substitutes non-land inputs for land. As a result, the land-rent function of the flexible farmer is steeper than the land-rent function of the inflexible farmer.

  Does company behave like a monopoly or like competitive firm

research information on companies that have engaged in monopoly behavior, such as Microsoft, Google, or Wal-Mart, and explain how society has been affected by the monopoly behavior using that information.

  Examine who will be the winner and loser

Examine who the winner and loser would be - either the borrower or the lender in the given scenario. Provide support for your response.

  Discuss a firms objective relative to its economic cost

Discuss a firm's objective relative to its economic cost. Describe each of the firm's economic cost, and whether these would be considered explicit or implicit. What is the difference between an economic profit and an accounting profit.

  Will the household be better or worse off under the new

Suppose that the average household in a state consumes 800 gallons of gasoline per year. A 20-cent gasoline tax is introduced, coupled with a $160 annual tax rebate per household.

  What kinds of changes in underlying conditions

What kinds of changes in underlying conditions can cause the supply curve to shift? Give some examples and explain the direction in which the curve shifts.

  How do these effects apply to government bureaucracy

What effect does increased competition have on the slope of an individual firm's demand curve? Why? How does a change in the slope of a firm's demand curve affect its efficiency? How do these effects apply to government bureaucracy?

  How did this likely affect labours share in national income

Does an increase in the average annual labour income imply that the individual worker's labour income has increased and

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd