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Unformatted text preview: in consumers 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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This note was uploaded on 05/05/2010 for the course ECON 316 taught by Professor Delia during the Spring '10 term at Rutgers.
- Spring '10