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Economics: Law of Diminishing Marginal Utility

1. Which gives you greater total utility, 12 gallons of water per day or 20 gallons per day? Why? 2. At which level do you get greater marginal utility, 12 gallons per day or 20 gallons per day? Why?

Risk, Uncertainty and Information

A firm hires a worker, and the worker chooses between two levels of effort (e), e=1 and e=4. Hiring the worker provides profits (s), and there are two possible levels of profits, s=40 and s=280. If e=1, the probabilities are 0.8 of s=40, and 0.2 of s=280. If e=4, the probabilities are 0.5of s=40 and 0.5 of s=280. The worker's ut

Risk, Uncertainty and Information

Traders are divided into 2 groups, sellers and buyers. Each seller sells one or no cars, and each buyer buys one or no cars. There are more buyers than sellers and the market is competitive. Cars can be "lemons" with quality q=1 or "peaches" with quality q=3. The proportion of lemons is ½. The von Neumann Morgenstern utility fu

Risk, Uncertainty and Information

Important Note: Please try to use mathematical notation as much as you can to demonstrate your answer, but don't forget to carefully define each step you make. Question (a) Define "risk averse". (b) Why does a risk averse agent offered actuarially fair insurance choose to insure fully? (c) What does the agent choose if t

Risk, Uncertainty and Information

Important Note: Please try to use mathematical notation as much as you can to demonstrate your answer, but don't forget to carefully define each step you make. Question (a) What is expected utility theory? (b) On what assumptions is the theory based, and how plausible are these assumptions? (c) Explain the Ellsberg par

Oyuki's preferences over swords

Oyuki's preferences over swords (good X) and all other consumption (good Y) are given by U(X, Y ) = XY. Her income is $16, the price of a sword is $2 and the price of the composite good is $1.

Using utility function to solve for optimal choice

Suppose that the typical consumer has the following utility function: U(N, Y) = N×Y, where Y = income or expenditures on goods, and N = leisure (non-work) hours. The wage rate is given by w = $10. The consumer is initially taxed at the proportional rate of t1 = .4. The consumer has no unearned income (Y* = 0). The time const

Utility Maximization Exchange Economy

This question is about Walrasian equilibrium in an exchange economy with 2 goods and 2 consumers. Taxes are introduced in the question to solve for the equilibrium and allocation under Pareto theorem. Question (2) Consider an exchange economy with 2 goods and 2 consumers . Consumer 1's initial endowment is and consum

Consider an exchange economy with two consumers and three goods

The attached question is about 2 consumers with 3 goods in an exchange economy. The consumer's utility functions are given. The question asks to find demand functions for each consumer as well as finding Walrasian equilibrium under certain assumptions. Thanks Question (1) Consider an exchange economy with

Public Utilities

This is another one of those questions that isn't really discussed in the textbook and, since I'm not really sure about the difficulties the public utilities face, I have not idea where to begin in answering this question. Some guidance please... "Given the difficulties that the regulation of public utilities faces, would

The utility for citizens

Consider two nations, one a developing nation and the other a developed nation. The population size of each nation is the same. Suppose that each nation experienced an equally large increase in investment. Which nation is likely to receive the most benefit from this increase in investment? Explain your answer.

Allocating Expenditures Between Goods

Mrs. Wilson buys loaves of bread and quarts of milk each week at prices of $1 and 80 cents, respectively. At present she is buying these two products in amount such that the marginal utilities from the last units purchased of the two products are 80 and 70 utils, respectively. Is she buying the utility-maximizing combination of

Economic Theory on Utility

2- Suppose a person has $8 to spend only on apples and bananas. Apples cost $.40 each, and bananas cost $.10 each. a- If this person buys only apples, how many can be bought? b- If this person buys only bananas, how many can be bought? c- If the person were to buy 10 apples, how many bananas could be bought with the fun

Agent and Principal Utility

The utility of the agent is given by U(w, a) = √w − a, where w is wage and a is effort. The reservation utility of the agent is 1. There are two profit levels, π;l = $0 and π;h = $100. The principal is risk-neutral. The wages are restricted to be non-negative, w ≥; 0. Suppose there are three levels of effort for the agen

Optimal Consumption

For each of the following situations, decide whether the bundle Lakshani is thinking about consuming is optimal or not. If it is not optimal, how could Lakshani improve her overall level of utility? That is, determine which good she should spend more on and which good should she spend less on. a. Lakshani has $200 to spend on s

Marginal Utility in Real Life

Use the concept of marginal utility to explain the following: Newspaper vending machines are designed so that once you have paid for one paper; you could take more than one paper at a time. But soda vending machines, once you have paid for one soda, dispense only one soda at a time.

Diminishing, Increasing and Constant Marginal Utility

For each of the following situations, decide whether Al has increasing, constant, or diminishing marginal utility. a. The more economics classes Al takes, the more he enjoys the subject. And the more classes he takes, the easier each one gets, making him enjoy each additional class even more than the one before. b. Al likes

Marginal and Total Utility

You go to an auction and set a maximum price of $100 you are willing to bid on an item. However, you are fortunate and purchase it for $50. 1) Does the lower price alter the marginal utility you originally placed on the item? 2) Is your potential total utility increased because of the lower price? I struggling with

Consumption Spending Utility Functions

I am stuck on a question and can use some help with a detailed solution. A utility function of a worker is U(C,L) = C * L where C is Consumption and L is Leisure If the worker has a weekly income of $600 and has 70 hours a week of Leisure, how many additional dollars of income would it take to make the worker work 10

Utility Maximization

Every November, Smith and Jones each face the choice between burning their leaves or stuffing them into garbage bags. Burning the leave sis much easier but produces noxious smoke. The utility values for each person, measured in utils, are listed in the table for each of the four possible combinations of actions: (please see at