econ 212 practice midterm 2

econ 212 practice midterm 2 - econ212 Practice midterm 2...

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Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. Sally Kink is an expected utility maximizer with utility function pu ( c 1 ) + (1 - p ) u ( c 2 ), where for any x < 1,000, u( x ) = 2 x , and for x greater than or equal to 1,000, u ( x ) = 2,000 + x . a. Sally will be risk averse if her income is less than $1,000 but risk loving if her in- come is more than $1,000. b. Sally will never take a bet if there is a chance that it leaves her with wealth less than $2,000. c. Sally will be risk neutral if her income is less than $1,000 and risk averse if her in- come is more than $1,000. d. For bets that involve no chance of her wealth exceeding $1,000, Sally will take any bet that has a positive expected net payoff. e. None of the above. ____ 2. (See Problem 11.) Jonas’s expected utility function is pc 1/2 1 + (1 - p ) c 1/2 2 , where p is the probability that he consumes c 1 and 1 - p is the probability that he consumes c 2 . Jonas is offered a choice between getting a sure payment of $Z or a lottery in which he receives $3,600 with probability .10 or $6,400 with probability .90. Jonas will choose the sure payment if a. Z > 6,084 and the lottery if Z < 6,084. b. Z > 4,842 and the lottery if Z < 4,842. c. Z > 6,400 and the lottery if Z < 6,400. d. Z > 6,242 and the lottery if Z < 6,242. e. Z > 6,120 and the lottery if Z < 6,120. ____ 3. Sir Plus has a demand function for mead that is given by the equation D ( p ) = 100 - p . If the price of mead is $95, how much is Sir Plus’s net consumer’s surplus? a. 12.50 b. 6.25 c. 25 d. 5 e. 9,500 ____ 4. The demand function for drangles is given by D ( p ) = ( p + 1) -2 . If the price of drangles is $4, then the price elasticity of demand is a. -0.80. b. -6.40. c. -3.20. d. -4.80. e. -1.60. ____ 5. The demand for football tickets at each game is 160,000 - 12,000 p . If the capacity of the stadium is 90,000 seats, what is the revenue-maximizing price for the owner of the stadium to charge per tick- et? a.
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This note was uploaded on 01/26/2010 for the course ECONOMICS EC212 taught by Professor Yu during the Spring '08 term at Mt. Holyoke.

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econ 212 practice midterm 2 - econ212 Practice midterm 2...

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