Q2. (i) Consider a risk averse investor who must decide how much of his initial wealth w to put into a risky asset. The risky asset can have any of the positive or negative rates of return r with probability density function f(r). If ß is the amount of wealth to be put into the risky asset, final wealth under rate of return r will be (w − ß) + (1 + r)ß = w+ ßr. The investor's problem is to choose 3 to maximize the expected utility of wealth. We can write this formally as the following single-variable optimization problem max fu(w + Br)f(r)dr s.t.: 0 ≤ ß ≤w. B (1) Suppose we have interior optimal ß* falls in (0, w), which is determined by the following first order condition: fu' (w+Br)rf(r)dr = 0. (2)
Q: A company produces and sells a consumer product and thus far has been able to control the volume of…
A: A. Given the demand equation D=500-5P Evaluate the optimal number of units sold to meet the…
Q: What is total expenditure in an economy? Total expenditure is equal to expenditure ______. A. on…
A: Total expenditure in an economy is also referred to as its GDP. Total Expenditure includes…
Q: When does a movement along the supply curve occur, and when does the supply curve shift? If the…
A: The movement along the supply curve occurs when there is change in the price of a particular…
Q: Recently, which factor has led to a decline in world trade and has significantly impacted global…
A: Answer:- C.the COVID-19 global pandemic Explanation- Supply chains have been disrupted by the COVID…
Q: Consider the market for High-Definition television sets in an average town in America. a. Start in…
A: In the free market, price and quantity is determined by the intersection of demand and supply curve.…
Q: True/ false Describe Since a greater utility number indicates that a consumer is better off,…
A: Utility: Utility is used to model value or value. Its use has evolved significantly over time. The…
Q: Using a suitably labeled diagram, discuss the underlying relationship between the Economics System…
A: An economic system refers to a usual mechanism used by communities or governments to coordinate and…
Q: Give four (4) economic activities that generate both positive and negative externalities
A: An externality is a positive or negative side effect of production or consumption in economics. It…
Q: Ice cream is made from fresh milk. A change occurs in the market for ice cream and the supply of ice…
A: The law of supply refers to the positive relationship between price and quantity supplied. as price…
Q: Zeitler’s Department Stores sells its products online and through traditional brick-andmortarstores.…
A: Consider the referred parallel-coordinates map, which shows the data from a sample of 20 consumers,…
Q: Suppose you find that MU1(X1Xx2)=2x2 and MU₂(x1+x₂)=2x1. What is the rate at which the consumer is…
A: Q1 1.5 Q2 For this consumer good 1 and good 2 are perfect complements because MU1 (X1,X2) = 2,…
Q: A man borrowed P20,000 from a local commercial bank which has a simple interest of 16% but the…
A: An interest rate provides information on how costly borrowing is or how profitable saving is. As a…
Q: Assume that trucks are an input into the production of new homes. In the market for new homes, what…
A: Here trucks are input in the production of new homes. When the cost of production decreases due to…
Q: True/ false Describe Since a greater utility number indicates that a consumer is better off,…
A: The term "utility" describes the overall enjoyment or gain from consuming a good or service. It is a…
Q: PERSPECTIVES In 2020, the United States devoted about 0.18 percent of its $21 trillion GDP to…
A: US GDP in year 2020 = 21 trillion. Total Population = 3 billion
Q: Suppose that you are a consumption smoother. You expect to live for another 28 years. You just…
A: According to the permanent income hypothesis, people will spend money at a rate that is consistent…
Q: Is tipping a waiter 15% of the bill traditional,market or command in economics?
A: Tipping a waiter 15% of the bill is a tradition in some cultures. In others, it is considered a…
Q: Assumptions for all the questions: Private consumption is a function of disposable income and…
A: Initially in economy , Y* < Y (Full employment ) Capital flow = 0 In Short run the effect of…
Q: Use the Solow Model and graphically illustrate the effect of an increase in the saving rate on…
A: The Solow model is a model of economic growth.
Q: TB(Q) = 100 + 36Q – 4Q2 and TC(Q) = 80 + 12Q + 1.2Q2.
A: The firm's prime objective is to maximize the profit. The profit is maximized where the Marginal…
Q: Task 2: At a price of $4, is there a shortage or surplus of bananas? How many pounds? Task 3: At a…
A: Given information: Q = 25 - 2P ---------> Demand function for bananas Q = 3P --------------->…
Q: Like a good economist, you calculated the cost of getting your college degree, including the…
A: Let's summarize the given information Tuition cost in university is $12000 per year The total cost…
Q: What would the value of spending be if you had $1300 in savings and $2250 in income?
A: The benefit gained from spending would amount to $2,250. Explanation: If you don't have any…
Q: True or false: a change in fixed costs will change average total cost. a.True b.False
A: The measure that depicts the expenses that are incurred for carrying day-to-day expenses of the…
Q: ________ endowments are the result of investments of people, companies and government, and are more…
A: Comparative advantage depends on the resources which are inherent in the country naturally. It is…
Q: 09.
A: Given, time available per day = 500 minutes Daily demand = 157 parts per day Set up time = 6 minutes…
Q: A man wishes his son to receive P250,000 ten years from now. What amount should he invest if it will…
A: The present worth technique is very famous in industry since every single future expense and incomes…
Q: How would the production possibilities curve be impacted? Group of answer choices The PPC would…
A: 1. As a result of this policy more students will be able to attend the college. The PPC would shift…
Q: a. Start in Equilibrium (be sure to label all relevant points) b. Change at least one of the ceteris…
A: Supply and demand, two economic forces, govern the creation of goods and services in a market…
Q: A drought decreases the quantity of milk supplied by 60 cartons a day at each price. What is the new…
A: According to the theory of the market, market equilibrium(E) occurs where market DD equals market…
Q: I am not sure what is the answer
A: We know that The demand curve indicates that when the price of good changes what happens to its…
Q: DIFFERENCE BETWEEN Debt and equity markets
A: Debt and equity markets are markets where firms borrow capital and investors lend capital.
Q: Which of the following related to Transfer payment? O Pocket money to children O Payment made to…
A: "Since you have asked multiple questions, we will solve the first question for you. If you want any…
Q: A local defense contractor is considering the production of fireworks as a way to reduce dependence…
A: The optimum level of output for a firm that maximises profit is given at the point where marginal…
Q: Consider the information about the economy of Pakistan. Note that the currency of Pakistan is the…
A: The total monetary worth of all finished goods and services produced in a nation during a given time…
Q: demand for chocolate decreases with no change in the supply of chocolate,
A: According to the theory of the market, market equilibrium(E) occurs where market DD equals market…
Q: hat is GNP? GNP is the market value of all the final goods and services _____. A. produced within a…
A: Macroeconomics refers to the branch of economics concerned with huge-scale or general economic…
Q: List the components of GDP in the output (expenditures) approach.
A: Note: We’ll answer the first question since the exact one wasn’t specified. Please submit a new…
Q: Suppose we know that p=1,056– D/5, where p = price in dollars and D = annual demand. The total cost…
A: Any firm maximizes profit where: Marginal Revenue = Marginal Cost MR = dTR/dD where TR is the Total…
Q: 1. What equal-annual-payment series is required in order to repay each given present amount? (a) Php…
A: The rate of interest that is actually generated on an investment or paid on a loan as a result of…
Q: Suppose a war destroys part account of a neutron bomb bein change to show the effect of thi over…
A: The Solow growth model spotlights on long-run economic growth. A vital component of economic growth…
Q: Draw areal symbols (circles) to represent the GNP per capital. Draw these relevent places on the…
A: The value of all goods and services produced by a nation's citizens and enterprises, regardless of…
Q: e market for digital watches is at its market equilibrium. Now the cost of producing a digital watch…
A: The Equilibrium will occurs where the demand and supply for good are equal. The change in the demand…
Q: Refers To an
A: In the given question The term commodity basically refers to an agriculture product or a particular…
Q: Which of the following is a money market security?
A: Money market securities are debt products with maturities of one year or less. Money market…
Q: Which of the following statements is correct? A. The manger must produce at Q for which MR = MC…
A: Let profit function is denoted by π(Q), revenue function is denoted by R(Q) and cost function is…
Q: economy not achieve multiple economic goals simultaneously?
A: Basic features of an economy are - 1) resources our scarce or limited 2) while wants are unlimited…
Q: Under market prices and estimates of economic value, discuss how land and labour are valued
A: Generally, land and labor are valued based on their market prices and estimates of economic value.…
Q: A firm has the following benefits and costs equations: B(Q) = 450Q - 26Q² and MC(Q) = 136Q The Q…
A: Given are the total benefits and total costs of the firm. The Q where total benefit would be…
Q: Consider the following Stackelberg duopoly. Both firms produce differentiated goods. For form 1, the…
A: Stackelberg duopoly is a model in which leader can make first move and follower can make other one ,…
Step by step
Solved in 2 steps
- Q1) An expected utility maximiser owns a car worth £60000£60000 and has a bank account with £20000£20000. The money in the bank is safe, but there is a 50%50% probability that the car will be stolen. The utility of wealth for the agent is u(y)=ln(y)u(y)=ln(y) and they have no other assets.DN4 Suppose that two investments have the same three payoffs, but the probability associated with each payoff differs, as illustrated in the table below: Probability (Investment B) Payoff $300 $250 $200 Probability (Investment A) 0.10 0.80 0.10 0.30 0.40 0.30 Nahoko has the utility function U= 51, where I denotes the payoff. Which investment should she choose?Y5 Alfred is a risk-averse person with $100 in monetary wealth and owns a house worth $300, for total wealth of $400. The probability that his house is destroyed by fire (equivalent to a loss of $300) is pne = 0.5. If he exerts an effort level e = 0.3 to keep his house safe, the probability falls to pe = 0.2. His utility function is: U = w0.5 – e where e is effort level exerted (zero in the case of no effort and 0.3 in the case of effort).a. In the absence of insurance, does Alfred exert effort to lower the probability of fire?HINT: Calculate and compare the expected utility i) with effort, and ii) without effort. If effort is exerted, then the effort cost is paid regardless of whether or not a fire occurs.b. Alfred is considering buying fire insurance. The insurance agent explains that a home owner’s insurance policy would require paying a premium α and would repay the value of the house in the event of fire, minus a deductible “D”. [A deductible is an amount of money that the…
- A lottery has a grand prize of $1,000,000, 2 runner-up prizes of $100,000 each, 6 third-place prizes of $10,000 each, and 19 consolation prizes of $1,000 each. If a 4 million tickets are sold for $1 each, and the probability of any ticket winning is the same as that of any other winning, find the expected return on a $1 ticket. (Round your answer to 2 decimal places.The investor is considering how to optimally invest 1000 euros in stocks and bonds. Let's assume that the optimal decision is made based on expected utility. Suppose the investor has a utility function u(x)=ln(1+x), where x is their wealth. Let y be the proportion invested in stocks and 1−y be the proportion invested in bonds. By investing in stocks, the investor earns 1% with a probability of 39.5% and 4% with a probability of 60.5%. By investing in bonds, the investor earns a certain 2.8%. What proportion of the investment will the investor allocate to stocks and what proportion to bonds?(Ch 7) Suppose a standard normal random variable has an 80 percent chance falling in an interval (–z, z). The value of z is approximately ____ (use Appendix C-1). a. 1.45 b. 1.35 c. 1.96 d. 1.28
- Suppose that there is limited commitment in the credit market, but lenders are uncertain about the value of collateral. Each consumer has a quantity of collateral H, but from the point of view of the lender, there is a probability a that the collateral will be worth p in the future period, and probability 1 - a that the collateral will be worthless in the future period. Suppose that all consumers are identical. (a) Determine the collateral constraint for the consumer, and show the consumer’s lifetime budget constraint in a diagram. (b) How will a decrease in a affect the consumer’s consumption and savings in the current period, and consumption in the future period? Briefly explain your results. Please do fast ASAP fastA risk-averse expected-utility maximizer has initial wealth w0 and utility function u. She facesa risk of a financial loss of L dollars, which occurs with probability π. An insurance companyoffers to sell a policy that costs p dollars per dollar of coverage (per dollar paid back in theevent of a loss). Denote by x the number of dollars of coverage.(a) Give the formula for her expected utility V (x) as a function of x.(b) Suppose that u(z) = −e−zλ, π = 1/4, L = 100 and p = 1/3. Write V (x)using these values. There should be three variables, x, λ and w. Find the optimal value of x,as a function of λ and w, by solving the first-order condition (set the derivative of the expectedutility with respect to x equal to zero). (The second-order condition for this problem holds butyou do not need to check it.) Does the optimal amount of coverage increase or decrease in λ,where λ > 0?(c) Repeat exercise (b), but with p = 1/6.(d) You should find that for either (b) or (c), the optimal coverage…Marcus is an expected utility maximizer with the Bernoulli utility function u(w) = √w. He faces a gamble in his wealth. In a good state he gets 81 and in a bad state he gets 9. He can take out an insurance plan which will leave him with a wealth of 49 in each state. (a) (b) (c) state? Is Marcus risk averse? Will he purchase the insurance if the probability of the states is ½ for each Let p denote the probability of the good state. For what value(s) of p will Markus be just indifferent between taking out the insurance and not taking it out? Show your working.
- At races, your horse, White Rum, has a probability of 1/20 of coming 1st, 1/10 of coming 2nd and a probability of 1⁄4 in coming 3rd. First place pays $5,000 to the winner, second place $4,000 and third place $1,350.Hence, is it worth entering the race if it costs $1050? Your company plans to invest in a particular project. There is a 40% chance you will lose $3,000, a 45% chance you will break even, and a 15% chance you will make $5,500. Based solely on this information, what should you do? On 1st Jan 2006, a business had inventory of $19,000. During the month, sales totalled $32,500 and purchases $24,000. On 31st Jan 2006 a fire destroyed some of the inventory. The undamaged goods in inventory were valued at $11,000. The business operates with a standard gross profit margin of 30%. Based on this information, what is the cost of the inventory destroyed in the fire?Consider an investor with initial wealth yo, who maximizes his expected utility from final wealth, E[u()]. This investor can invest in two a risky securities, 1 and 2, with random return ři and ř2. Those risky returns are two binomial variables, perfectly correlated. More specifically, with probability p we have ř =r and r, = r+ô, and with probability 1- p we have î = 0 and ř2 = -6, where r> 0 and ổ > 0. We assume that this investor has log preferences, that is u(y) = log(y). 1. For a given fraction, a, of the initial wealth, invested in risky security 2, what is the distribution of final wealth, g1? 2. Determine the expression of Elu(1)] as a function of a. 3. Explain why there is an upper bound and a lower bound for a, and determine those bounds. 4. Determine the optimal fraction a*. 5. When p = 0.5, describe qualitatively the optimal investment strategy. Does it make sense?9) A risk-neutral individual with current wealth w has already decided investing all his wealth in a project that has two possible net wealth outcomes wn and we (with probabilities pr and pe, respectively) where wr > w > we > 0, PrPe E (0,1), and pr + Pe = 1. Before he invests, he realises that there is a source of information that tells the individual which outcome will be realised with truth, what is the value of this information for the individual? a) pe(@ – w;), b) (Pn – Pe)w, c) Phwn + PeWe – w, d) Pr(w – wn).