Can earn that income next year with certainty

Assignment Help Microeconomics
Reference no: EM13319339

Suppose that Natasha's utility function is given by u(l) = y^5, where I represents annual income in thousands of dollars.

a. Is Natasha risk loving, risk neutral, or risk averse? Explain.

b. Suppose that Natasha is currently earning an income of $10,000 (I = 10) and can earn that income next year with certainty. She is offered a chance to take a new job that offers a .5 probability of earning $16,000, and a 5 probability of earning $5000. Should she take the new job? c. In (b), would Natasha be willing to buy insurance to protect against the variable income associated with the new job? If so/how much would she be willing to pay for that insurance? (Hint: What is the risk premium?)

Reference no: EM13319339

Questions Cloud

Plot the data in your table as a budget line in a graph : Suppose you won $15 on a lotto ticket at the local 7-Eleven and decided to spend all the winnings on candy bars and bags of peanuts. The price of candy bars is $.75 and the price of peanuts is $1.50.
Find out the speed at the bottom of the incline : an inclinced plane mass is .5kg inclinced plane at 30 degrees is 6.40m long, a book has kinetic friction with the incline of .2, find out the speed at the bottom of the incline
What speed corresponds to this kinetic energy : What is the minimum energy of a 2.7 g Ping-Pong ball in a 10-cm-long box, What speed corresponds to this kinetic energy
What is the maximum thermal efficiency of the power plant : A nuclear power plant generates 3000 MW of energy from nuclear reactions in reactor%u2019s core. What is the maximum thermal efficiency of the power plant
Can earn that income next year with certainty : Would Natasha be willing to buy insurance to protect against the variable income associated with the new job? If so/how much would she be willing to pay for that insurance? (Hint: What is the risk premium?)
How many oscillations will the pendulum have completed : In a science museum, a 130kg brass pendulum bob swings at the end of a 13.7m -long wire. how many oscillations will the pendulum have completed
What is its the mass of the ball : A spring with spring constant 11N/m hangs from the ceiling. A ball is attached to the spring and allowed to come to rest. What is its the mass of the ball
What is the resistance of each resistor : A 12.6 V battery (assuiming the internal resistance = 0) is connected to two resistors in series. What is the resistance of each resistor
Relate this information to the following statement : Suppose that, on the basis of a nation’s production possibilities curve, an economy must sacrifice 10,000 pizzas domestically to get the 1 additional industrial robot it desires but that it can get the robot from another country in exchange for 9000 ..

Reviews

Write a Review

Microeconomics Questions & Answers

  Are stocks of productive capital currently growing

1. If interest rates or opportunity costs investment, happened to be the same in both developed countries and emerging economy nations, what could account for faster upward shifts in the latter group's planned investment functions 2. Are..

  What is the amound of the tax per gallon of gasoline

The government has imposed a tax on gasolone. What is the amound of the tax per gallon of gasoline How much tax revenue will government collect from this tax How much of the tax is paid by consumers

  What is the long run effect of monetary policy

What is depreciation of a currency? Appreciation of a currency? What interest rate is the Fed trying to control (target) with open market transactions? How are long term interest rates determined? What is the long run effect of monetary policy? Why d..

  Ethical missteps by companies for safety-related issues

What are the facotrs involved? What were the circumstances? How was the dilemma handled? What were the consequences?

  What was the rate of return on the investment

An investment of $100,000, increased to $168,510 over a 5 year period. What was the rate of return on the investment?

  During the last three decades entrepreneurs like michael

During the last three decades entrepreneurs like Michael Dell, Sam Walton, and Ted Turner earned billions of dollars. Do you think the average American is better or worse off as the result of the economic activities of these individuals? Explain your..

  Would the worker continue to be a member of the labor

Assuming that U =0.5, would an hour spent in the labor force searching for a job make the husband better off or worse off? Would the worker continue to be a member of the labor force under these conditions? If not, how would he be ca..

  The most widely use of index

The index most widely used by the government and the private sector to measure changes in the cost of living is the GDP deflator or else.

  What effect will have on output

Suppose the price of labor increases to $2 per unit. What effect will this have on output per unit of labor and is this plant subject to decreasing returns to scale? Why or why not?

  Calculate values at the profit-maximizing activity level

Calculate output, marginal cost, average cost, price, and profit at the average cost-minimizing activity level and calculate these values at the profit-maximizing activity level. Explain your answers briefly

  What is distinguishing characteristic of a public good

A negative externality created by a producer means that from the standpoint of the public's well being and for the producer and his/her industry in question Even a perfectly competitive market may produce too little of a good

  Short run and long run decisions

Assume that you became president of small theater company. Your playhouse has the 120 seats and small stage. The actors have national reputations, and demand for tickets is enormous relative to number of seats available

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