Your bike is worth $100 and if you park it outside at school there is a 25% chance that it will be stolen. Your utility function for money is U = (M)2. Assume throughout that the bike value and money are interchangeable since you could sell the bike instantly at its value if necessary. Campus security has a bike check in that will guard your bike for $15 so there will be no risk of loss. Do you take the campus security deal?
What will be an ideal response?
No, because you must compare your utility from 85 certain dollars with 75 expected dollars. Since your utility function is as stated, you value 852 less than (75%)(1002) + (25%)(02).
You might also like to view...
In 2012, part-time workers for noneconomic reasons were about ________ of total employment, and part-time workers for economic reasons were about ________ of total employment
A) 3 percent; 25 percent B) 17 percent; 17 percent C) 2 percent; 12 percent D) 13 percent; 20 percent E) 13 percent; 6 percent
Which of the following is correct for the Irish economy?
(a) GNP=GDP-NFY. (b) GDP=GNP+NFY. (c) GNP=GDP+NCT. (d) GDP=GNP-NCT.
Which of the following is an accurate statement concerning rent controls?
a. Decreases in rent are allowed, but not increases. b. Rents often fluctuate during the tenure of an occupant. c. Rents are fixed even though cost of living might increase. d. Small annual increases are allowed because of cost of living.
One consequence of unemployment is that:
A. the time and skills of the unemployed are not being put to use. B. it can create uncertainty about the future. C. some productive potential of the economy is being wasted. D. All of these are consequences of unemployment.