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Consider an individual possessing a utility function (measured in "utils") over annual employment income M (measured in dollars) given by U(M) =10-13M3-(6)10-8M2+(1.5)10-2M. Graph U(M) for 0 ≤ M ≤ 400,000 in an appropriate diagram. Determine the level of income MN at which the individual is risk neutral and indicate it on your diagram. Why might we observe this individual purchasing insurance and lottery tickets at the same time if his income is sufficiently close to this level, and can this behavior be rationalized? Explain. You are encouraged to utilize Excel to aid in answering this question.

 

Microeconomics, Economics

  • Category:- Microeconomics
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