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This problem uses a utility function of the form U = 1 – exp(-0.002 X Income) where exp(z) means “ez”. The problem analyzes a gamble in which Income = 1,000 with probability 0.4 and Income = 3,000 with probability of 0.6. a) Calculate the expected income and variance. b) Calculate the expected utility. c) Calculate the certainty equivalent income, Ic, which is the level of income generates the expected utility. d) Calculate the risk premium, which is defined as the difference between expected income and Ic. e) Calculate the approximate risk premium by using the formulae, risk premium = -0.5 * r * variance. Is it different from what we get in the last step?
Think of another good that you have purchased recently (or you could continue with the good you selected in TDA I). Be specific (e.g. is it breakfast cereal in general or Cheerios cereal specifically). If the price of this item increases, how would t..
Short run refers to a period of time during which:
If marginal cost exceeds marginal revenue, a profit-maximizing monopolist will
Assume income is $10, the price of each slice of pizza is $1, and the price of each glass of beer is $2. Now change income to $12 and show a demand curve for pizza.
A manufacturer has paid an engineering firm $200,000 to design a new plant, and it will cost another $2 million to build the plant. In the meantime, however, the manufacturer has learned of a foreign company that offers to build an equivalent plant f..
Health insurance companies are oligopolies, and one of the criticisms of oligopolies is the adverse impacts these firms have on income distribution. Discuss in relation to the policies and practices of health insurance companies.
Why might a money lender who relies on threat of cutting off future credit to enforce repayment of current loans be less willing to make a loan to an individual that plans to invest money productively.
the net profit earned in business rs 60000 but the net sales occurred during the year are rs. 300000.compute the net
What are some of the reasons that the U.S. has greater degrees of income and wealth inequality than other high-income market capitalist economies?
Discuss the strategy at HK Disneyland in the context of standardization versus differentiation of attractions.
Two methods of filling cereal boxes are being compared. Both methods fill the box with the same amount of cereal on average so the company wants to select the method with the lower variance. At the 5% level of significance, does it appear that the va..
Are monopolies and oligopolies (firms demonstrating power) always bad for society?
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