f08econ142hw4

# f08econ142hw4 - Kata Bognar [email protected]/* <![CDATA[ */!function(t,e,r,n,c,a,p){try{t=document.currentScript||function(){for(t=document.getElementsByTagName('script'),e=t.length;e--;)if(t[e].getAttribute('data-cfhash'))return t[e]}();if(t&&(c=t.previousSibling)){p=t.parentNode;if(a=c.getAttribute('data-cfemail')){for(e='',r='0x'+a.substr(0,2)|0,n=2;a.length-n;n+=2)e+='%'+('0'+('0x'+a.substr(n,2)^r).toString(16)).slice(-2);p.replaceChild(document.createTextNode(decodeURIComponent(e)),c)}p.removeChild(t)}}catch(u){}}()/* ]]> */ Economics 142...

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Kata Bognar [email protected] Economics 142 Probabilistic Microeconomics UCLA Fall 2008 Homework Assignment 4. Due date: December 4, 2008 1. ‘At the southernmost point of the United States are the Florida Keys, a string of [20] small islands held together by a concrete causeway.’ Two of these remote coral islands are Key Largo and Key West. Both islands have 50 inhabitants. Each year, early fall a hurricane passes by the area hitting one or the other island with equal probability and destroying 75% of the wealth on that (but not on the other) island. Suppose that every habitant of Key Largo has \$10 , 000 from last year tourism. Then, if the hurricane hits Key Largo each habitant looses \$7 , 500 . Similarly, suppose that every habitant of Key West has \$10 , 000 and if the hurricane hits Key West each habitant looses \$7 , 500 . The habitants of the Keys are expected utility maximizers with vNM utility function u ( x ) = x. (a) What are the relevant states of nature in this situation?
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## This note was uploaded on 01/25/2010 for the course ECON ECON 142 taught by Professor Bognar during the Fall '09 term at UCLA.

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