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‘‘Risk-averse people should only be averse to big gambles with a lot of money at stake. They should jump on any small gamble that is unfair in their favor.’’ Explain why this statement makes sense. Use a utility of income graph like Figure 4.1 to illustrate the statement. For a challenge, demonstrate the statement using a two-state graph like Figure 4.6.
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- Suppose David is the owner of a start-up hamburger store. After 3 days of Grand Opening, David had received £59. This table below is the tracking of the 3-day sales. Chicken Burger Beef Burger Cheeseburger Total Revenue Day 1 Day 2 Day 3 1 2 3 £11 2 4 £21 3 5 £27 However, the one problem is that David forgot all the price of those types of burgers. Therefore, use the Cramer's rule to find out the price of each type of burgers.Suppose your classmate Tim offers you a wager: He will choose a playing card at random from a deck and pay you $3,000 if it is red, but you have to pay him $3,000 if it is black. Assume your wealth is currently $9,000. The graph shown below plots your utility as a function of wealth. Use the graph to answer the questions that follow. UTILITY (Units of utility) 100 90 80 70 60 50 40 30 20 10 0 0 32 + 6 U + 9 B ?At a different table, Juan wins $600 in a blackjack game. Similarly, he has to choose between $600 or the chance to play a new game. In this game, Juan has a 60% chance of winning nothing and a 40% of winning $1,000. The following graph presents the utility function of Juan with respect to money: U(w) U(w) U(1,000) U(700) U(600) U(400) 400 600 700 1,000 w 10.2.2 1.0 point possible (graded, results hidden) By how much money would his winnings need to increase or decrease so that Juan is indifferent between the $600 and the new game? (in case of an increase, insert a positive number; in case of a decrease, insert a negative number).
- Suppose your classmate Shen offers you a wager: He will choose a playing card at random from a deck and pay you $1,000 if it is red, but you have to pay him $1,000 if it is black. Assume your wealth is currently $3,000. The graph shown below plots your utility as a function of wealth. Use the graph to answer the questions that follow. UTILITY (Units of utility) 100 90 80 70 60 50 40 30 20 10 0 0 1 B +++ A 2 * 3 WEALTH (Thousands of dollars) The shape of your utility function implies that you are a the difference in utility between C and A is less than 4 5 ? risk-averse individual, and, therefore, you would not the difference between A and B. accept the wager because Which of the following sentences most appropriately describe why the pain of losing $1,000 is greater than the joy of winning $1,000 for individuals who are risk averse? Check all that apply. Risk-averse people are relatively wealthy and simply do not need the additional money. ✔ The utility function of a risk-averse person…Suppose your classmate Edison offers you a wager: He will choose a playing card at random from a deck and pay you $3,000 if it is red, but you have to pay him $3,000 if it is black. Assume your wealth is currently $9,000. The graph shown below plots your utility as a function of wealth. Use the graph to answer the questions that follow. UTILITY (Units of utility) 100 90 80 70 60 50 40 30 20 10 0 0 3 6, 55 A C + 6 B 9 WEALTH (Thousands of dollars) 12 15 ? individual, and, therefore, you would The shape of your utility function implies that you are a risk-averse the difference in utility between B and A is greater than the difference between A and C. Which of the following sentences most appropriately describe why the pain of losing $3,000 is greater than the joy of winning $3,000 for individuals who are risk averse? Check all that apply. Risk-averse people are relatively wealthy and simply do not need the additional money. Risk-averse people overestimate the probability of losing money.…Suppose your classmate Cho offers you a wager: She will choose a playing card at random from a deck and pay you $3,000 if it is red, but you have to pay her $3,000 if it is black. Assume your wealth is currently $9,000. The graph shown below plots your utility as a function of wealth. Use the graph to answer the questions that follow. UTILITY (Units of utility) 100 90 80 60 50 40 30 20 10 0 0 3 CX T² B 9 WEALTH (Thousands of dollars) 12 The shape of your utility function implies that you are a the difference in utility between B and A is 15 (2.) ? individual, and, therefore, you the difference between A and C. accept the wager because Which of the following sentences most appropriately describe why the pain of losing $3,000 is greater than the joy of winning $3,000 for individuals who are risk averse? Check all that apply. Risk-averse people overestimate the probability of losing money. The more wealth that risk-averse people have, the less satisfaction they receive from an additional…
- Suppose your classmate Andrew offers you a wager: He will choose a playing card at random from a deck and pay you $1,000 if it is red, but you have to pay him $1,000 if it is black. Assume your wealth is currently $3,000. The graph shown below plots your utility as a function of wealth. Use the graph to answer the questions that follow. UTILITY (Units of utility) 100 90 80 70 60 40 30 20 10 0 0 B 3 WEALTH (Thousands of dollars) The shape of your utility function implies that you are a the difference in utility between B and A is ? individual, and, therefore, you the difference between A and C. accept the wager because Which of the following sentences most appropriately describe why the pain of losing $1,000 is greater than the joy of winning $1,000 for individuals who are risk averse? Check all that apply. Risk-averse people are relatively poor and cannot afford to lose any money. The more wealth that risk-averse people have, the more satisfaction they receive from an additional…PROBLEM 4 – Weak Axiom of Revealed Preference (WARP) Kenangan likes to have time at a coffee shop that also sells “roti bakar.” When the price of a cup of coffee was 10,000 rupiah and the price of roti bakar was 20,000 rupiah, Kenangan ordered three cups of coffee and two pieces of roti bakar. When a pandemic happens, there are increases in the price of coffee. Now the price of a cup of coffee is 12,000 rupiah while the price of roti bakar is down to 16.000 rupiah. Kenangan now orders two cups of coffee and one piece of roti bakar. Determine whether Kenangan’s demand for a cup of coffee and roti bakar fulfills the WARP. Explain using graphics!You are considering going to a football game. However, the roads are cover in ice due to bad weather. Your ticket was a gift. You derive a value of z from attending the game, and a cost of D for driving on the icy roads. Your utility function is given by: ug(Z) + ui(D) = In(Z - 3) - In(2 - D). In your ultimate wisdom, you calculate that the cost of driving on the icy roads is 1 unit (So, D=1). What is the minimum value you must obtain from attending the game, so that you decide to go? Solution sent me fast ..
- Suppose an individual in the Grossman model is trying to decide what to have for dinner. His options are as below. Each dish has an effect on the level of home good Z and health H. Мeal Home good Z Нeath H Steak and eggs (A) Kale salad with broccoli (B) Entire box of cookies (C) +7 -2 -2 +5 +10 -20 Suppose the dinner's single-period utility function is U=3Z+H • If the individual is trying to maximize his single-period utility, and he can only select one item from the table (assuming he can afford any item in the table). Which meal would he choose? Please type in A, B, or C (do not enter space, punctuation, or any other symbols or words) • A miracle pill is discovered that halves the negative health impact of cookies. How does this impact the individual's choice? What meal would be chosen now? Please type in A, B, or C (do not enter space, punctuation, or any other symbols or words) • If the individual lives in multi-period rather than single-period, would he value Z or H more in…Suppose you have $10, which you can wager in a game called "double or quits." In this game, you roll a fair die. If you roll a 4, 5, or 6, you win the game, getting back your $10 plus $10 more for a total of $20. If you roll a 1, 2, or 3, you lose the game and your $10. Your utility function is shown on the following graph Utility 10 20 Income According to this graph of your utility function, would you be considered risk-averse or a risk-taker? Why? Risk averse because of increasing marginal utility of income Risk taker because of increasing marginal utility of income Risk taker because of diminishing marginal utility of income O Risk averse because of diminishing marginal utility of incomeAnton, Betsy and Catherine are three college friends who regularly go the movies. At the movies, they can purchase skittles (x) and junior mints (y). The table below display the total utility each of them get from bundles of these two snacks (x, y). Bundle A = (1,1) B = (1,2) C = (1,3) D = (1,4) E = (1,5) Anton's Anton's Utility MUY (2) (1) 10 14 16 17 17.5 Betsy's Utility (3) 10 10 9 8 7 Betsy's MU, (4) Catherine's Utility (5) 10 12 15 19 24 Catherine's MUY (6) a) Yesterday the three friends went to watch the Barbie movie and they purchased the same bundle, bundle B = (1,2), with 1 bag of skittles and 2 bags of junior mints. Can you say who of the three friends experienced the highest utility from consuming bundle B? Explain. b) As you may have noticed, all bundles in the table contain 1 bag of skittles while they differ in the number of bags of junior mints. Fill in columns (2), (4) and (6) in the table by computing the marginal utility each friend receives from choosing a bundle…