Exam306 - Lyon Econ 7140 April 4 2006 Third Exam 1...

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Unformatted text preview: Lyon Econ 7140 April 4, 2006 Third Exam 1. Individual A has the utility function ( ) x x U ln = for income (the scale of x is $10, 000). The individual has a job offer that pays $40,000 with a bonus. The bonus will be 0 or $50,000 with equal probability. a. What is the certainty equivalent of this offer? Show all of your work. The algebra of getting a number is straight forward, but if you do not see it, leave the result as an algebraic expression. In your answer show me that you understand these concepts. b. Draw a graph of the relevant items in the above question. c. Individual B has the utility function ( ) x x u = . This individual has the same job offer as described above. Is Individual B more or less risk averse than Individual A with respect to this job offer? Explain. 2. The profit function is 1 1 x w pq − = π where p is the price of the output, y is the output, 1 w is the price of 1 x , and 1 x is a composite input of the variable inputs. The farmer is assumed to own the other inputs and composite input of the variable inputs....
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Exam306 - Lyon Econ 7140 April 4 2006 Third Exam 1...

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