problem set 9

# problem set 9 - Problem Set 9 Discussion Sections Economics...

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Problem Set 9 Discussion Sections Economics 200 1. Smith purchases a dozen eggs and must take them home. The probability that all of the eggs carried on any one trip will be broken during the trip is one-half. Trips home are costless. Smith is considering two strategies: (i) take all of the eggs in one trip, or (ii) take two trips with six eggs in each trip. Show that if Smith is risk averse, then he should not put all of his eggs in one basket. 2 trip breaking all: 1/2 *1/2 1 trip breaks all 1/2 E(x) are same. Adverse will choose to separate 2. You are thinking of buying an oilfield. The probability that there are zero barrels of oil in the field is 1/3, the probability that there are 30 barrels of oil in the field is 1/3, and the probability that there are 120 barrels of oil in the field is 1/3. The current owner of the oilfield could earn a profit of \$1.00 on each barrel of oil and so, for example, if there are 30 barrels of oil he will earn a profit of \$30. You are a very efficient oil producer and you could earn a profit of \$1.50 on each barrel of oil.

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problem set 9 - Problem Set 9 Discussion Sections Economics...

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