Unformatted text preview: in consumer’s surplus. Again, not worth it. e. This answer is the same as part c. PART III a. U’’(W) = -1/W 2 < 0 for all W>0. Therefore, the consumer is risk averse. b. The objective function is F(a) = 0.2*ln[500,000 – 10,300a – (1-a)50,000] + 0.8*ln[500,000 – 10,300a] Since U(W) is concave (i.e., risk averse consumer), setting the first derivative of F(a) to zero gives maximum utility. This happens when a = 0.64....
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- Spring '10
- Economics, Prof. Derek DeLia, risk averse consumer, Economics Health Economics, marginal cost. d., Department of Economics Health Economics