Mark's preference can be represented by an exponential utility function u(y)=5-1.2-y where y is defined as...

Mark's preference can be represented by an exponential utility function u(y)=5-1.2^-y where y is defined as number of dollars.

What is Mark's risk odds in a binary deal where he/she could win or lose $3? (Round up to 3 decimal places)

Expert Solution

Risk = Potential loss/Potential profit

loss => y= -3

profit => y=+3

Risk = u(-3) / u(+3)

Risk = 3.272 / 9.8 = 0.333

Therefore the risk odds are 0.333, that is for ever unit of utility which can be potentially gained, a 0.333 unit of utility which of risk is taken.

Rahul Sunny answered 2 years ago

If the consumer preference on (x1, x2) can be represented as the following utility function: U...

If the consumer preference on (x1, x2) can be represented as the following utility function: U = 0,75 log ?1 + 0,25 log ?1 s.t. ?1?1 + ?2?2 = ? a. Find the walrasian/marashallian demand function for both goods b. Find the Indirect Utility Function c. Show using example that the indirect utility function is homogenous of degree zero in p and I

Dr Pepper’s preferences can be represented by the utility function u(x,y) = x + y where...

Dr Pepper’s preferences can be represented by the utility function u(x,y) = x + y where x is his consumption of Coca Cola (hereafter, referred to as Coke) and y is his consumption of orange juice (hereafter, referred to as OJ). Initially, both types of drinks are not taxed and with an income of $12 he faces prices ($1, $2). On the advice of nutritionists, the government decides to impose a specific tax of $2 on Coke which leads to...

Your preference is represented by the utility function: u(x1, x2) = x10.5x20.5 where x1 is potato...

Your preference is represented by the utility function: u(x1, x2) = x10.5x20.5 where x1 is potato chips (in bags) and x2 is chocolate bars. The price of a bag of potato chips is $5 and the price of a chocolate bar is $10. (a)You have no income, but you received a gift from your uncle. The gift is 9 bags of potato chips and 1 chocolate bar. What is your utility from consuming the gift? Assume that you cannot exchange...

Ella’s preferences can be represented by the utility function u(x,y) = min{5x, y}. If the price...

Ella’s preferences can be represented by the utility function u(x,y) = min{5x, y}. If the price of x is $10 and the price of y is $15, how much money would she need to be able to purchase a bundle that she likes as well as the bundle (10, 25). Select one: a. $475. b. $85. c. $425. d. $209. e. $440.

Judy's preferences over x and y can be represented by the utility function: U=xy3 The price...

Judy's preferences over x and y can be represented by the utility function: U=xy3 The price of x is Px = 8, the price of y is Py = 4, and her income is I = 480. At Judy's optimal consumption bundle, What is her demand for x? What is her demand for y?

A consumer's preferences for food (x) and clothes (y) are represented by the utility function u(x,y)=...

A consumer's preferences for food (x) and clothes (y) are represented by the utility function u(x,y)= x + 2 ln(y). The prices of food and clothes are px and py euros/unit, respectively, and the consumer's income is I euros. A. (10 points) Describe the consumer's problem, including her budget constraints, and calculate her ordinary demand functions, x(px,py,I) and y(px,py,I). B. (10 points) For prices and income (px,py,I)=(1,1,3), calculate the substitution and income effects over the demand of y of a...

Suppose that an individual has a utility function of the form U = Y½ where U...

Suppose that an individual has a utility function of the form U = Y½ where U is utility and Y is income. a) Calculate the utility level for Y values of $10,000, $40,000, $90,000, $160,000, and $250,000 and then plot the individual’s total utility function. b) This individual is currently earning $90,000 but has a 50-50 chance of earning either $40,000 or $160,000 in a new job. i) Calculate the expected income and utility from the new...

Brianna’s preferences can be represented by the utility function u(x,y) = min{x,y}. Initially she faces prices...

Brianna’s preferences can be represented by the utility function u(x,y) = min{x,y}. Initially she faces prices ($2,$1) and her income is $12. If prices change to ($3,$1) then the compensating variation Select one: a. There is not enough information to determine which variation is greater. b. is $2 more than the equivalent variation. c. is $1 less than the equivalent variation. d. equals the equivalent variation. e. is $1 more than the equivalent variation.

A consumer’s utility function is U = logx + logy2 , where and y are two...

A consumer’s utility function is U = logx + logy2 , where and y are two consumption goods. The price of x is $2.00 per unit and the price of y $5.00 per unit. Her budget is $1000. Solve her utility maximization problem and find her optimal consumption of x and y. Will your answers change if the consumer’s utility function is U = logxy2 instead – why or why not?

Suppose that the utility function of a consumer is U(x,y) = x ¼y ¾, where x...

Suppose that the utility function of a consumer is U(x,y) = x ¼y ¾, where x and y are the quantities of the good X and good Y consumed, respectively. The consumer's income is 400. (a) What is the demanded bundle when the price of good X is 10 and the price of good Y is 10? (b) Redo part (a) when the price of good X is doubled? (c) Redo part (a) when the price of good Y is...

Question