How is the cost of risk calculated when making a decision with an uncertain outcome?
What will be an ideal response?
A decision made with uncertainty has an expected wealth and an expected utility that depend on the probability, wealth, and utility associated with the different outcomes. Because people are risk averse, the amount of certain wealth that creates the utility equal to the expected utility in the uncertain case is less than the expected wealth in the uncertain case. The difference between the expected wealth in the uncertain case and the certain wealth that creates the same level of utility is the cost of risk.
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Professor Rush decided to quit teaching economics and opens a shoe store out at the mall. He gave up an annual income of $50,000 to open the store. A year after opening the shoe store, the total revenue for the year was $200,000
Rush's expenses were $30,000 for labor, rent was $18,000, and utilities were $1,200. He also had to purchase new shoes from manufacturers, at a cost of $60,000, which was financed by cashing in his savings of $60,000 that had been in a bank earning 8 percent per year. The normal profit from operating a shoe store in the mall is $20,000. Determine Professor Rush's explicit costs, implicit costs, and economic profit.
Are the members of the Board of Governors of the Federal Reserve System elected officials?
What will be an ideal response?
Money spent on lobbying to eliminate the estate tax is not a cost of the tax system
a. True b. False
If the price of Chinese food decreases, then the demand for chopsticks decreases because they are complementary goods
Indicate whether the statement is true or false