In: Economics
*Answer:
0.2*(100-x+8x)^0l.5+0.8*(100-x)^0l.5=10
0.2*(100+7x)^0l.5+0.8*(100-x)^0.5=10
SOlving using excel we get x <=45.3 units when wealth is 100
Now when wealth is 150
0.2*(150+7x)^0l.5+0.8*(150-x)^0.5>=10
Yes if we are going to buy atmost 132 units of security then we should buy this security
Now when wealth is 200
0.2*(200+7x)^0l.5+0.8*(200-x)^0.5>=10
Yes if we are going to buy atmost 132 units of security then we should buy this security
in this case if we buy atmost 192 units of security then we should buy this security
when 50% tax is applied then we have
When wealth is 100 if we buy x units then we have
0.2*(100-x+8*0.5x)^0.5+0.8(100-0.5x)^0.5>=10 for some x
using excel we get,
x<=67 to n=buy this security
When wealth is 200 if we buy x units then we have
0.2*(200-x+8*0.5x)^0.5+0.8(200-0.5x)^0.5>=10 for some x
then it gives higher utility than 10 for any x ranges from 0 ton 200
therefore she will buy more securities
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