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Suppose the function u(x) = x^0.5 where x is consumption represents your preference over gambles using an expected utility function.You have a probability δ of getting consumption xB (bad state) and a probability 1-δ of getting xG (good state).(a) Calculate the certainty equivalent xCE of the gamble.(b) Calculate the risk premium of the gamble.Now let δ = 0.1, xB = 10 and xG = 100.An insurance company allows you to choose an insurance contract (b, p), where b is the insurance benefit the company pays you if bad state occurs and p is the insurance premium you pay the company regardless of the state.Suppose the company's offer is p = 0.2b. You may choose any combination of (b, p).(c) Is the insurance contract actually fair? How much will you insure (i.e. find your optimal p and b)?(d) What will your consumptions be in the two states with the insurance. Are you fully insured?(e) What is the expected profit of the insurance company from the contract?
Public regulation of a market is utilized when which of the following is present:
consider the following production function y fkl a k0.4 l1.0a. calculate the marginal product of labor.b. does this
Lenders and borrowers are all so nervous that the huge planned increase in the money supply ,refrred to as 'quantitative easing' , may have much smaller stimulating effect than it would have in normal circumstances.This strategy is not without ris..
why would a country eliminate trade restrictions and encourage free trade? using the european union as an example
Redstone's manager is fired, and you are now the manager of Redstone Clayworks. How many fire pits would you choose to produce and why?
In a recent conversation a policy maker argued that since DEWA is monopolist, they are charging higher price and lower output is produced. He further mentioned that government should split the entire unit into small pieces so that competition can dri..
Consider the Russian ruble. In recent months, the value of the ruble has fallen considerably. The typical explanation for this is that political events, in the Ukraine, in particular, have made the future value of the currency difficult to predict. S..
In working out your responses to the Discussion Question, you should choose examples from your own experience or find appropriate cases on the Web that you can discuss. Credit will be given for references you make to relevant examples from real compa..
According to the Bureau of Labor Statistics, the CPI rose 3.8 percent in August of this year compared to a year earlier. Food prices rose 4.6% and clothing prices were up 4.2 percent, while new car prices rose 3.8 percent and medical care was up 3.2 ..
Describe the economic characteristics and significance of Rostow’s take-off stage in economic growth and discuss whether China has undergone that stage at any time. Show evidence?
Is the demand for table salt elastic or inelastic? Why?
assuming that the fed judges inflation to be the most significant problem in the economy and that it wishes to employ all of its policy instruments except intrest on reserves, what should the fed do with its three policies.
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