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9. If he buys $x of insurance, he has to pay $x/6 for it. His expected utility is:
(1/11)(5x/6).5 + (10/11)(300,000 x/6).5. Differentiating gives 0 = .5*(5/6)
(1/11)*(5x/6)-.5 - .5(10/11)(-1/6)*(300,000 x/6)-.5. Simplifying, we have 5*(5x/6)-.5 =
10*(300,000 x/6)-.5, or WF-.5 = 2*WNF-.5. Squaring both sides gives 1/WF = 4/WNF,
or 4WNF = WF, so the answer is (b).
10. Right now he is consuming 200/4 = 50x, so his utility is 2*50 = 100. If he can buy y for
$1, he would buy only y, since he gets 1 unit of utility for $1 from consuming y, but only
1 unit of utility for 4/2 = $2 from consuming x. Consuming 100 units of y would give
him the same amount of utility as he has currently, so hed pay up to the amount to join
that would leave him with the ability to buy 100y. Since this amount is $100, and he has
$200, hed be willing to pay up to $100 to join the club, and so the answer is (b).
11. If he doesnt buy a license, hell fish for 2 hours, and get utility 43 + 3*2 = 49. If he does
buy a license, hed fish 8 hours, giving him utility of 3*8 = 24 from fishing. Hed need
49 24 = $25 in pizza to make him just as well off, so hed be willing to pay up to $43 $25 = $18 for a license, and so the answer is (a).
12. U(x,m) = 100x x2/2 + m. But m = 10,000 and the amount he has left over from this is
10,000 px. So, U(x) = 100x x2/2 + 10,000 px. Differentiating gives us 0 = 100 x
p, so p = 100 x. This is the inverse demand curve. When p = 50, x = 50, and the
consumer surplus is 50*50/2 = 1250. When p = 80, x = 20, and the consumer surplus is
20*20/2 = 200. Thus his consumer surplus falls by 1250 200 = 1050 and the answer is
(a).