Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Microeconomics Expert

problem 1: Joe has the expected utility function u (c1,c2) = p1c10.5 + p2c20.5 where c1 and c2 are consumption levels in states 1 and 2, which occur with probabilities p1 = 3/8 and p2 = 5/8 

a) find out Joe’s expected  utility if c1 = 0 and c2 = 100. find out the expected value of this lottery, and the utility of receiving this expected value with certainty, i.e., of receiving this expected value in both states of nature. Which is larger: the expected utility of the lottery, or the utility of the expected value of the lottery? What does this tell you about  Joe’s attitude toward risk?

b) The certainty equivalent of the lottery is a payoff which, if received with certainty, would make the person indifferent between the lottery and receiving the certainty equivalent in each state. find out the certainty equivalent of the lottery in (a). How does it compare to the expected value?

c) Show that, in general, if one is risk averse, then the certainty equivalent of a lottery falls short of its expected value. The difference between these two is often called the risk premium for the lottery.

d) Find the formula for an indifference curve, giving c2 as a function of c1, identifying combinations of c2 and c1 that give the same expected utility.

e) Find the slope of this indifference curve when c2 = c1. describe why it has this slope.

problem 2: A monopolist has the production function y = z11/2z21/3. Demand is given by p = a - by.

a) Find the conditional input demand for input 1.

b) Find the long-run cost function of the firm.

problem 3: All consumers in a community have the expected utility function

u (c1,c2) = p1c10.5+ p2c20.5. Now c1 = 36 and c2 = 64, which occur with probabilities p1 =1/2 and p2 =1/2

a) Find the expected utility of this lottery.

b) Suppose now there are two agents. Each faces this lottery, but the outcomes are independent. Hence, with probability 1/4 each receives 36, with probability 1/4  each receives 64, and with probability 1/2 , one receives 36 and the other 64. The two agents make an agreement that if one receives 36 and the other 64, the fortunate agent transfers 14 to the unfortunate agent. find out their expected utility under this arrangement. Such an arrangement is the essence of an insurance policy: people facing uncorrelated risks can use the fact that they are unlikely to both experience losses to eliminate some of the risk they face.

c) Suppose again that there are two agents, each facing this lottery, but with perfectly correlated lotteries. Hence, either both receive 36 or both receive 64. Can an arrangement like that of [b] give both agents a higher expected utility than that find outd in [a]?

d) In light of your answers to [a] - [c], describe why it may be easier to insure houses against fires than against floods. What you have just discovered is that if insurance is to be effective, it must involve uncorrelated rather than correlated risks. An insurance policy cannot help with risks that tend to either impose a loss on everyone, or on no one. What risks are likely to fall into this category?

problem 4: A monopolist has a cost function c (y) =100 + ay + by2and faces demand p1 = 100 – y1 and p2 = 150 – 2y2. Define y = y1 +y2.

a) Find the marginal cost function of the firm.
b) Find the profit-maximizing prices in the two markets.
c) Does market 2 affect market 1’s price, and if so, why?
 
problem 5:

a) John has a von-Neumann-Morgenstern utility function over Bernoulli utility u(c) = c1/2. John has $1000. If John is offered a riskless bond that will pay him $1000 in four years’ time, and the interest rate is r, what price should John be willing to pay for the bond today?

b) Now suppose that the bond is not so riskless. There is a 10% chance that the bond will be worthless when it comes due. What is the most John should be willing to pay?
 
problem 6: A monopolist has a cost function c (y) =100 + ay. Demand is given by y = 100 – bp(y).

a) The monopolist can perfectly price discriminate (i.e. first-degree). Find the monopoly profits as a function of a and b.

b) Now suppose that there are 10 consumers who each have the demand function y = 100 – bp(y). The monopolist cannot perfectly price discriminate, but can use two-part pricing, setting a fixed fee for access to the good, and then a per-unit price.
Find the optimal fixed fee and the optimal per-unit price.  Find the monopoly profits per consumer as a function of a and b. 

c) What is the consumer surplus per consumer in case (b)?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M91834
  • Price:- $110

Guranteed 48 Hours Delivery, In Price:- $110

Have any Question? 


Related Questions in Microeconomics

Write a paper 2 - 4 pages based upon the following

Write a paper (2 - 4 pages) based upon the following activity: During an evening of television viewing, write down all of the advertisements you see (minimally use 10). 1. Which ones did you like? Which ones did you disl ...

Cost-benefit analysisi measuring benefits from projects

Cost-Benefit Analysis I. Measuring Benefits From Projects That Reduce Private Good Costs Of Production (No distortions.)The inverse demand function for a good is given by: P = 30 -Q/3. Assume that the initial supply curv ...

1 mary has two possible career paths she can become either

1. Mary has two possible career paths. She can become either a biologist or a concert pianist. Mary lives for 2 periods. In the first period she gets the appropriate education for her career. In the second period, she wo ...

Assignmentuse the globaledge website to complete the

Assignment Use the globalEDGE website to complete the following exercises: • The World Trade Organization maintains a database of regional trade agreements. You can search this database to identify all agreements that a ...

1what is the connection between economic and environmental

1. What is the connection between economic and environmental shocks (e.g. global events, wars, commodity price fluctuations) and changes in money and banking strategy? Highlight specific examples. THESE ARE THE INSTRUCTI ...

To begin you initial post research one of the health

To begin you initial post, research one of the health profession licensing agencies in your state. Analyze and comment on the role this professional licensing group plays in the creation of policy within the profession a ...

Principles of economics1 which statement is truea today

Principles of Economics 1. Which statement is true? A) Today more workers in the U.S. are members of labor unions than any time in our history. B) Today labor unions are weaker than any time in the last 100 years. C) No ...

Discussion questions1 firms made a come back by trimming

Discussion Questions 1) Firms made a come back by trimming costs, reducing unused capacity and increasing profits. List at least two issues in which they focus on. 2) What are the effects of nonperforming loans on a bank ...

Finding the equilibrium pointat the beginning of 2005

FINDING THE EQUILIBRIUM POINT At the beginning of 2005, Toyota sold 175,000 vehicles. Based on the company's analysis of the small car market, the company believed that $16,000 was the equilibrium price based on the foll ...

Economics money bankingintroductioneconomics money and

Economics Money Banking Introduction Economics Money and Banking focuses on the traditional model of money and banking in the American banking system, a mixed capitalist economy. The course explains the functions of mone ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate