Explain how the graph shows which option lisa will choose

Assignment Help Microeconomics

Reference no: EM133439718

Question: James and Lisa are offered a choice between options A and B:

A: Lottery =(0.5,$100;0.5,$20). This is a gamble with a 50% chance of winning $100 and a 50% chance of winning $20.

B: $40 for certain.

(a) James is risk-neutral. Will James choose A or B? (1 mark)

(b) Lisa is risk averse with wealth $100 and utility function U(x) = ln(x). Will Lisa choose A or B? (1 mark)

(c) Draw a graph showing the choices faced by Lisa, her utility curve and the expected utility of each option. Indicate the certainty equivalent of option A. Explain how the graph shows which option Lisa will choose.

Reference no: EM133439718

Questions Cloud

What the purpose of emergency plan : Explain what the purpose of an emergency plan is and what the following mean in terms of emergency planning:

What is the pie shop pro?t-maximizing output and price : The variable costs of producing a pie are given by the equation VC = 5Q and so the marginal costs are constant at MC = $5. a) What is the pie shop's pro?t

What is the market equilibrium in this market : Explain how the price adjusts. If the price is $6, describe the situation in the olive oil market. Explain how the price adjusts. What is the market

How can you practice sustainable tourism : Make a reflection paper and describe the iconic natural and man-made attractions presented in each video. How can you practice sustainable tourism

Explain how the graph shows which option lisa will choose : James is risk-neutral. Will James choose A or B? Explain how the graph shows which option Lisa will choose.

What is the cost to you of attending the game : What is the cost to you of attending the game? What is the benefit of attending the game? Should have have gone to the game?

What is the utility loss due to the tax : Write down the budget constraint and plot it. Calculate the optimal bundle and maximized utility for the consumer. A new tax of $5 is imposed on the price

How is the saying when in rome, do as the romans do : How is the saying "when in Rome, do as the Romans do" applicable to the study of ethics? Should one modify his or her core values to adapt to another culture

What would be opportunity cost of john going to university : What would be the opportunity cost of John going to university? Please include your calculations.

User Account

All Pages