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Feliz [49]
3 years ago
7

Fred is thinking of starting a bowling alley near a college campus. Fred is an expected utility maximizer with utility function:

U(W) = 1 – (3000/W), where W is his wealth. Fred’s total wealth is $12,000. With probability 0.2 the alley will be a failure and he’ll lose $9,000, so that his wealth will be just $3,000. With probability 0.8 it will succeed and his wealth will grow to $X. What is the smallest value of X that would be sufficient to make Fred want to invest in the bowling alley rather than have a wealth of $12,000 with certainty?
Business
1 answer:
vlada-n [284]3 years ago
5 0

Answer:

$14,250

Explanation:

To determine what amount of money will make Fred take his chances and invest in this new business, we first have to solve this equation:

  • current wealth - (% chance of losing money x wealth after losing money)

$12,000 - (20% x $3,000) = $12,000 - $600 = $11,400

Then:

$11,400 / 80% of getting wealthier = $14,250

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This can be found by the formula:
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Solving gives:

= 54.75 + (0.419 x 1.64)

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Find out more on control limits at brainly.com/question/15581863.

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Charlie's brother, Alexander, also consumes apples (A) and bananas (B). Alexander's utility function happens to be U(A, B) = 5A
Andrei [34K]

Solution :

U(A, B) = 5A + 2B

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     210 - 4  = 5x

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Therefore, (41.2, 2)

b). $MRS_{BA} = \frac{MU_B}{MU_A}$

                  $=\frac{\delta U/\delta B}{\delta U/\delta A}$

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                 = 0.4

So Alexander  has 40 apples and 5 bananas with this bundle. Alexander would like to give up 0.4 unit apples for a banana.

7 0
3 years ago
Waylon works for a company that produces temporary tattoos. His company wants to reach a young, highly engaged target market. Hi
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3 0
2 years ago
Union local school district has bonds outstanding with a coupon rate of 3.2 percent paid semiannually and 16 years to maturity.
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Answer:

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Bond Price​= $4,700.15

8 0
3 years ago
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