SOLVED

51) If Shaniq is a risk averse, then A) her cost of risk exceeds $0. B) she has diminishing marginal utility of wealth. C) she is willing to buy insurance if the cost of insurance is low enough. D) all of the above 52) If Pearl is a risk averse, then A) expected utility has nothing to do with her choices. B) she does not have diminishing marginal utility of wealth. C) she will not buy insurance. D) risk is costly to her. 53) Option A provides $9,000 with probability 50 percent or $11,000 with probability 50 percent. Option B provides $8,000 with probability 50 percent or $12,000 with probability 50 percent. For most people the cost of risk associated with B is A) less than that associated with A. B) the same as that associated with A. C) exactly twice that associated with A. D) more than twice that associated with A. 54) Kedran is indifferent between option A, which gives her $10,000 for sure, and option B, which gives her $5,000 with probability 0.4 or $15,000 with probability 0.6. Kedran’s cost of risk for option B is A) zero. B) $1,000. C) $5,000. D) $10,000. 55) Nicole is indifferent between option A, which gives her $20,000 for sure, and option B, which gives her $10,000 with probability 0.5 or $32,000 with probability 0.5. Nicole’s cost of risk for option B is A) zero. B) $1,000. C) $2,000. D) $20,000. 56) Goldie is indifferent between option A, which gives her $9,000 for sure, and option B, which gives her $3,000 with probability 1/3 or $18,000 with probability 2/3. Goldie’s cost of risk for option B is A) zero. B) $1,000. C) $3,000. D) $4,000. Wealth (dollars) Jimmy’s total utility (units) 0 0 100 200 200 300 300 350 400 375 500 387 600 393 700 396 57) Of the choices given below, Jimmy, whose utility of wealth schedule is given above, prefers 58) Jimmy’s utility of wealth schedule is given in the table above. Jimmy has a job with a one-third chance of earning $200 and a two-thirds chance of earnings $400. Jimmy’s cost of risk is A) $0. B) $16.67. C) $33.33. D) Jimmy’s cost of risk cannot be determined without more information. Â Income (dollars) Total utility 0 0 100 100 200 150 300 175 400 190 500 198 600 200 59) James has a utility of wealth schedule in the above table. He is offered a job selling video games at Games Galore. James’ compensation depends on how much he sells. In a poor sales period, a salesperson makes $100 per month. In a good sales period, a salesperson makes $600 per month. James is told by the manager that, in any given month, there is a 25 percent chance of a poor sales period and a 75 percent chance of a good sales period. Suppose that one of James’ professors offers him the opportunity to be a research assistant for a fixed and guaranteed amount each month. What amount must James’ professor pay in order to make James indifferent between being a research assistant and working at Games Galore? A) $300 per month B) $350 per month C) $475 per month D) $600 per month 60) James has a utility of wealth schedule in the above table. He is offered a job selling video games at Games Galore. James’ compensation depends on how much he sells. In a poor sales period, a salesperson makes $100 per month. In a good sales period, a salesperson makes $600 per month. James is told by the manager that, in any given month, there is a 25 percent chance of a poor sales period and a 75 percent chance of a good sales period. Suppose that one of James’ professors offers him the opportunity to be a research assistant for a fixed and guaranteed amount each month. Comparing the two opportunities, working at Games Galore versus being a research assistant, what is James’ cost of risk? A) $125 per month B) $175 per month C) $375 per month D) $500 per month