midterm03

# Midterm03 - Econ 51 Midterm Exam Tuesday February 8 2011 Instructions Please make sure to follow the instructions below Failure to follow them can

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1 Short Questions (28 points) (1) Let there be two states of the world s = 1 , 2, and let x and y be the consumptions in two states 1 and 2, respectively. Does the utility function u ( x,y ) = 6 + 5 x 2 + 7 y 2 +14 y +10 x represent a vNM preferences? Why or why not? If it does represent a vNM preferences, what are the implied probabilities of each state? (2) There are two states s = 1 , 2 with probabilities π and 1 - π . The agent’s vNM utility function is u ( x,y ) = π ( - x - 3 ) + (1 - π )( - y - 3 ), where x and y are consumptions in
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## This note was uploaded on 03/19/2011 for the course ECON 51 taught by Professor Tendall,m during the Winter '07 term at Stanford.

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Midterm03 - Econ 51 Midterm Exam Tuesday February 8 2011 Instructions Please make sure to follow the instructions below Failure to follow them can

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