Calculate steve’s expected income and expected utility

Assignment Help Econometrics

Reference no: EM131335531

Speedy Steve is a traveling salesman. His utility function is given by U = I^0.5, where U is his utility and I is his income. Steve's income is $900 each week, but if Steve is caught speeding while making his rounds, he will receive a hefty fine. There is a 50% chance he will be caught speeding in any given week, and pay a fine of $500.

a. Calculate Steve's expected income and expected utility.

b. Suppose that Steve's boss offers him a position in online sales that eliminates the risk of being caught speeding. What salary would provide Steve with the same utility he expected to receive as a traveling salesman?

c. Suppose instead that Steve was given the opportunity to purchase speeding ticket insurance that would pay all of his fines. What is the most Steve would be willing to pay to obtain this insurance? Explain how you arrived at this number.

d. If the company issuing the insurance referred to in (c) convinces Steve to pay the amount you indicated, will the insurer earn a profit? If so, how much profit will it earn?

Reference no: EM131335531

Questions Cloud

Analyze the qualities of a teacher : Analyze the qualities of a teacher or educator that were discussed in the "Teacher vs Educator" article. Evaluate yourself and explain the qualities you possess that will make you a great educator.

Compute the direct labor efficiency variance for february : Actual direct labor costs were $97,850 for 5,150 hours. Compute the direct labor rate variance and the direct labor efficiency variance for the month of February.

Discuss the development of nomothetic profiles : Discuss whether the development of nomothetic profiles have proven helpful in identifying patterns in mass murder incidents

Discuss the tension between the donor and the monk : Discuss your thoughts about importance of giving in Buddhism and the tension between the donor and the monk

Calculate steve’s expected income and expected utility : If the company issuing the insurance referred to in (c) convinces Steve to pay the amount you indicated, will the insurer earn a profit? If so, how much profit will it earn?

Write a linear equation in slope-intercept : There were 246 Apple stores worldwide in 2008 and 317 Apple stores worldwide in 2010. Write a Linear equation in slope-intercept form models this growth. Let x stand for the number of years after 2008 and y =the number of Apple stores worldwide.

Investment to double in size : Suppose $7,800 is invested in an account at an annual interest rate of 3.3% compounded continuously. How long (to the nearest tenth of a year) will it take the investment to double in size? Please be specific and detailed.

How do economists generally define efficiency in a market : Social welfare functions combine the utility levels of everyone in society into a single index. List three types of social welfare functions and discuss what they mean.

How do you see justice handled in our society : Justice for victims: How do you see justice handled in our society? What form of punishment do you see as being effective or ineffective

User Account

All Pages