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04 final 5 - El E The following is an example of a...

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Unformatted text preview: El E] The following is an example of a prisoners’ dilemma game. F Player A Player B Left Right Up (101,101) (200,50) Down (50,200) (1000,1000) 9. Bronwyn, who is risk averse at all levels of income, has $100 to invest in either mutual fund A or mutual fund B (she cannot invest in both). In one year’s time, Fund A is predicted to be worth $120 with probability 0.4 and $90 with probability 0.6. Fund B is predicted to be worth $250 with probability 0.2 and $70 with probability 018 True False Cl C] I: I: |_ |_ l— l— The expected return of fund B is higher than that of A, so Bronwyn should choose fund B. F If Bronwyn is observed to choose fund B, then either the assumption that she is risk averse is incorrect, or she is behaving irrationally. F Bronwyn has diminishing marginal utility of income. T There is not enough information supplied with the problem to determine which fund Bronwyn should choose . T 10. Identify whether each of the following transactions involves spot exchange, contract, or vertical integration. Spot Contract Vertical I] El El integration El Barnacle, Inc., has a legal obligation to purchase 2 tons of structural steel per week to manufacture conveyor frames. El Exxon-Mobil uses the oil extracted from its wells to produce raw polypropylene, a type of plastic, V.I. El Boat Lifis R Us purchases a generic (i.e. standard type) AC motor from a local distributor. S El Kaspar Construction—a homehuilding contractor—purchases 50 pounds of nails from the local Home Depot. S ...
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