Question
In: Economics
What are the similarities and differences between the utility function (i.e., u(x)) in the expected utility...
What are the similarities and differences between the utility function (i.e., u(x)) in the expected utility theory and the value function (i.e., v(x)) in the reference-dependent theory (i.e., the prospect theory)?
Solutions
Rahul Sunny answered 1 year agoRelated Solutions
Jim’s utility function is U(x, y) = xy. Jerry’s utility function is U(x, y) = 1,000xy...
Jim’s utility function is U(x, y) = xy. Jerry’s utility function
is U(x, y) = 1,000xy + 2,000. Tammy’s utility function is U(x, y) =
xy(1 - xy). Oral’s utility function is -1/(10 + xy. Billy’s utility
function is U(x, y) = x/y. Pat’s utility function is U(x, y) =
-xy.
a. No two of these people have the same preferences.
b. They all have the same preferences except for Billy.
c. Jim, Jerry, and Pat all have the same...
An investor's utility function for money (Bernoulli utility function) is the square root of money: u(x)=√x....
An investor's utility function for money (Bernoulli utility
function) is the square root of money: u(x)=√x. Her decision making
can be modeled by assuming that she maximizes her expected utility.
Her current wealth is 100. (All quantities are in hundreds of
dollars.)
She has the opportunity to buy a security that either pays 8
(the "good outcome") or loses 1 (the "bad outcome"). She can buy as
many units as she wishes. For example, if she buys 5 units, she...
An investor's utility function for money (Bernoulli utility function) is the square root of money: u(x)=√x....
An investor's utility function for money (Bernoulli utility
function) is the square root of money: u(x)=√x. Her
decision making can be modeled by assuming that she maximizes her
expected utility. Her current wealth is 100. (All quantities are in
hundreds of dollars.)
She has the opportunity to buy a security that either pays 8
(the "good outcome") or loses 1 (the "bad outcome"). She can buy as
many units as she wishes. For example, if she buys 5 units, she...
Suppose the function u(x) = 2x represents your taste over gambles using an expected utility function....
Suppose the function u(x) = 2x represents your taste over
gambles using an expected utility function. Consider a gamble that
will result in a lifetime consumption of x0 with probability p, and
x1 with probability 1 – p, where x1 > x0.
(a) Are you risk averse? Explain.
(b) Write down the expected utility function.
(c) Derive your certainty equivalent of the gamble. Interpret
its meaning.
(d) What is the expected value of the gamble?
(e) What is the risk...
Suppose a consumer's utility function is given by U ( X , Y ) = X...
Suppose a consumer's utility function is given by U ( X , Y ) =
X 1 2 Y 1 2. The price of X is PX=8 and the price of Y
is PY=5. The consumer has M=80 to spend.
You may find that it helps to draw a graph to organize the
information in this question. You may draw in the blank area on the
front page of the assignment, but this graph will not be
graded.
a) (2...
Esther consumes goods X and Y, and her utility function is U(X,Y)=XY+Y For this utility function,...
Esther consumes goods X and Y, and her utility
function is
U(X,Y)=XY+Y
For this utility function,
MUX=Y
MUY=X+1
a. What is Esther's MRSXY?
Y/(X + 1)
X/Y
(X + 1)/Y
X/(Y + 1)
b. Suppose her daily income is $20, the price of X is $4
per unit, and the price of Y is $1 per unit. What is her
best choice?
Instructions: Enter
your answers as whole numbers.
X =
Y =
What is Esther's utility when her...
Your utility function over x and y is U ( x , y ) = l...
Your utility function over x and y is U ( x , y ) = l n ( x ) +
0.25 y. Your income is $20. You don’t know the prices of x or y so
leave them as variables (p x and p y).
a) (8 points) Find x*, your demand function for x. Find y*, your
demand function for y.
b) (10 points) Find the cross-price elasticity of demand for x
(E x ∗ , p y:...
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...
A consumer can choose between goods X and Y. The consumer's utility function is: U=5X2Y2 Use...
A consumer can choose between goods X and Y. The consumer's
utility function is: U=5X2Y2
Use following notation, as we have in class:
Price of X = PX, Price of Y = PY, Income =
I, the Lagrange multiplier = λ
If PX= 20, PY = 5, and I =
400,
what is the optimal amount of X that will maximize the
consumer's utility subject to these prices and income?
what is the optimal amount of Y that will maximize...
For one purpose, the utility function of the consumer is u(x,y)=4?x+2y for maximum utility. 1. For...
For one purpose, the utility function of the consumer is
u(x,y)=4?x+2y for maximum utility.
1. For one purpose, the customer's income is I, and the price of
X is Px and the price of Y is Py. Obtain the demand function of
this person's Y ash through Px, Py, I.
2. For one purpose, the consumer has an income I = 40, and
initially the price of Px=1, and the price is Py=1.
(1) What is the difference between the...
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