Quiz1W10 - a 40% chance it is defective, in which case you...

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Econ 100b Winter 2010 Quiz 1 Version 1 You have 10 minutes to take this quiz. For each of the questions please circle the letter corresponding to the correct answer. 1. Today you have $100, but there is a 50% chance you will lose everything in the stock market. Your friend offers to fully insure your loss if you pay a flat $64 fee. If your utility over wealth is u ( w ) = w , which of the following is true? (a) EU (accept) = 4, EU (reject) = 5 (b) EU (accept) = 6, EU (reject) = 5 (c) EU (accept) = 8, EU (reject) = 50 (d) EU (accept) = 10, EU (reject) = 50 2. You just bought a watch that you value at $10. Because it’s a cheap watch, there is
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Unformatted text preview: a 40% chance it is defective, in which case you would only value it at $4 (it still looks good on you). The watch-maker offers insurance against defects at the price of 20 cents ($0.20) for each dollar of protection. You can buy any amount of this insurance, positive or negative. Let c d and c nd represent your enjoyment of the watch in the cases that it is defective and not defective, respectively. Which equation best characterizes the set of possible combinations of c d and c nd ? (a) c nd = 24-c d 4 (b) c nd = 34-c d 4 (c) c nd = 44-c d 4 (d) c nd = 54-c d 4 1...
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This note was uploaded on 12/26/2011 for the course ECON 100B taught by Professor Kilenthong during the Fall '08 term at UCSB.

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