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Ellsberg paradox and expected utility theory
Important Note: Please try to use mathematical notation as much as you can to demonstrate your answer, but don't forget to carefully define each step you make.
Question
(a) What is expected utility theory?(b) On what assumptions is the theory based, and how plausible are these assumptions?(c) Explain the Ellsberg paradox?(d) Do such paradoxes imply we should abandon the theory?
What is opportunity cost? Explain with the help of an example, why assumption of constant opportunity cost is very unrealistic? Explain law of demand with the help of a demand schedule and demand curve.
How do you explain and predict hospital behaviors if using the utility-maximizing
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Construct a table shoeing Grey's marginal sales per day in each state. Calculate Grey's maximum monthly commission income.
Suppose a friend you know requires a mortgage loan to purchase a house. Your friend can purchase it now or wait until later and is unsure of what to do.
What government officials increase the price of parking ticket from $40 to $50; they are surprised that their revenue actually falls. What happened?
Suppose that the town of Grayrock had a population of 10,000 in 1998 and a population of 12, 000 in 2003.
Suppose a firm must pay an annual tax, which is a fixed sum, independent of whether it produces any output-How does this tax affect the firm's fixed, marginal, and average costs?
When and why were the inflation and unemployment rates negatively correlated? When and why were the inflation and unemployment rates positively correlated?
When 50 employees are used, the average product of labor is 50 and the marginal product of 50th worker is 75.
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