EBK INTERMEDIATE MICROECONOMICS AND ITS
12th Edition
ISBN: 9781305176386
Author: Snyder
Publisher: YUZU
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Chapter 4A.3, Problem 1MQ
To determine
The reason which shows that the choices along the certainty line suggest that there is no risk is to be ascertained.
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Cost-Benefit Analysis
Suppose you can take one of two summer jobs. In the first job as a flight attendant, with a salary of $5,000, you estimate the probability you will die is 1 in 40,000. Alternatively, you could drive a truck transporting hazardous materials, which pays $12,000 and for which the probability of death is 1 in 10,000. Suppose that you're indifferent between the two jobs except for the pay and the chance of death. If you choose the job as a flight attendant, what does this say about the value you place on your life?
#3. Hannah gets 50 utils from visiting her family for Thanksgiving. But there is a 1% chance that she will get the coronavirus from them. If she gets the coronavirus, her utility is -6000 utils. Her total utility would be -5950 (i.e. 50 – 6000). She gets 0 utils from staying healthy (total utility = 50 + 0 = 50). If Hannah doesn't visit her family for Thanksgiving, then she gets -25 utils from eating turkey cold cuts alone in front of the TV. In that case, there is no risk of getting sick. What will Hannah do?
In the field of financial management, it has been observed that there is a trade-off between the rate of return that one earns on investments and the amount of risk that one must bear to earn that return.
a) Draw a set of indifference curves between risk and return for a person that is risk-averse (a person that does not like risk).
Chapter 4A Solutions
EBK INTERMEDIATE MICROECONOMICS AND ITS
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- Now, imagine that Port Chester decides to crack down on motorists who park illegally by increasing the number of officers issuing parking tickets (thus, raising the probability of a ticket). If the cost of a ticket is $100, and the opportunity cost for the average driver of searching for parking is $12, which of the following probabilities would make the average person stop parking illegally? Assume that people will not park illegally if the expected value of doing so is negative. Check all that apply.arrow_forward#2. Hannah gets 50 utils from visiting her family for Thanksgiving. But there is a 1% chance that she will get the coronavirus from them. If she gets the coronavirus, her utility is -6000 utils. Her total utility would be -5950 (i.e. 50 – 6000). She gets 0 utils from staying healthy (total utility = 50 + 0 = 50). What is her expected utility? a. 50 utils b. -6 utils c. -10 utils d. -5999.5 utils e. -6000 utils f. None of these #3. Hannah gets 50 utils from visiting her family for Thanksgiving. But there is a 1% chance that she will get the coronavirus from them. If she gets the coronavirus, her utility is -6000 utils. Her total utility would be -5950 (i.e. 50 – 6000). She gets 0 utils from staying healthy (total utility = 50 + 0 = 50). If Hannah doesn't visit her family for Thanksgiving, then she gets -25 utils from eating turkey cold cuts alone in front of the TV. In that case, there is no risk of getting sick. What will Hannah do? a. Visit her family for Thanksgiving b. Not visit her…arrow_forward12. A consumer who conforms to the von Neumann-Morgenstern axioms is faced with four situations A, B, C, and D. She prefers A to B, B to C, and C to D. Experimentation reveals that the consumer is indifferent between B and a lottery ticket with probabilities of 0.4 and 0.6 for A and D respectively, and that she is indifferent between C and a lottery ticket with probabilities of 0.2 and 0.8 for B and D respectively. Construct a set of von Neumann- Morgenstern utility numbers for the four situations.arrow_forward
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