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Show that the degree of risk aversion does affect the value of insurance. Is the value of fair insurance smaller or larger to a more risk-averse consumer?
Compute her expected payoff, her expected utility, the certainty equivalent of her risky consumption bundle, and the risk premium.
Explain why this statement is true. Assuming there are only two possible outcomes, illustrate with a graph.
Suppose that consumption when it's sunny and consumption when there's hurricane are perfect complement. Explain why the assumption imply infinite risk aversion.
List as many types of financial risk as possible for each of following activities: driving a car; going to college; trying out a new brand of breakfast cereal.
Based on your estimates, compute the PDV and the IRR of your investment in human capital.
Knowing only that Janet is more patient than Michael would you say she is more likely to undertake the project than Michael?
Explain intuitively why project A must be better than project B at higher interest rates as well.
Calculate the yield to maturity for each the bonds. A20-year bond with a coupon of $100, principle payment at maturity of $2,000, and a current price of $2,000.
The net cash flows from an investment are -X dollars in the first year, positive Y dollars in year T, and zero in all other years. Write a formula for the NPV.
What will the trustee do if the trustor invests $2, $4, $6, $8, or $10? What is the trustor's payoff in each case? What is the trustor's best choice?
Describe three situations in which people use rules of thumb to make complex decisions. What rules do they tend to use? Do those rules strike you as reasonable?
Why do you think the effect is so strong with regard to organ donation? Can you reconcile this pattern with standard economic theory?
Based on the material in this chapter, what patterns do you think you should watch out for? Why? How would you detect them?
What are the characteristics of a good economic experiment? What characteristics make an experiment convincing?
Do you agree with the prediction that they'll be unable to cooperate? If not, how and why might they be able to sustain cooperation?
Draw a table representing the given game, showing the players' strategies and payoffs. Are there any dominant, weakly dominated or dominated strategies?
Draw a table showing the two players' strategies and payoffs. Are any strategies dominant, weakly dominated, or dominated?
Draw a table representing this one-stage game, showing the players' strategies and payoffs. Does either company have a dominated strategy?
Suppose that XYZ Corporation's total wages are twice the company's total expenditure. What can you deduce about parameters a and ß of this production function?
What is the least-cost input combination for remodeling 100 square feet each week? What is the total cost?
The company can produce two hammers per hour of employed labor. What is its variable cost function? Graph its variable cost curve.
Suppose Noah and Naomi's short-run weekly production function for garden benches is F(L) = (3/2)L. What is Noah and Naomi's short-run cost function?
What happens to the firm's average product of labor? What about its marginal product of labor?
Below you have a table showing the marginal benefit and marginal cost of various amounts of tacos.