Exam 5: Uncertainty and Consumer Behavior

Scenario 5.7: As president and CEO of MegaWorld industries,Natasha must decide on some very risky alternative investments.Consider the following: -Refer to Scenario 5.7.Since Natasha is a risk-neutral executive,she would choose

Scenario 5.4: Suppose an individual is considering an investment in which there are exactly three possible outcomes,whose probabilities and pay-offs are given below: The expected value of the investment is $25.Although all the information is correct,information is missing. -Refer to Scenario 5.4.What is the probability of outcome B?

The information in the table below describes choices for a new doctor.The outcomes represent different macroeconomic environments,which the individual cannot predict. Table 5.3 -Refer to Table 5.3.Rank the doctor's job choices in order,least risky first.

Figure 5.1 -In Figure 5.1,the marginal utility of income is

We may not be able to fully remove risk by diversification if:

Use the following statements to answer this question: I.Subjective probabilities are based on individual perceptions about the relative likelihood of an event. II.To be useful in microeconomic analysis,all interested parties should agree on the values of the relevant subjective probabilities for a particular problem.

Richard is a stock market day trader.His utility of wealth function is Richard has seen a recent upward trend in the price of Yahoo stock.He feels that there is a 30% chance the stock will rise from $175 per share to $225.Otherwise,he believes the stock will settle to about $150 per share.Richard's current wealth is $1.75 million.Assume that if Richard purchases the stock,he will use his entire wealth.Given his risk preferences,will Richard buy Yahoo?

Which of the following is NOT an example of consumer behavior consistent with the standard assumptions of microeconomic theory?

Scenario 5.3: Wanting to invest in the computer games industry,you select Whizbo,Yowzo and Zowiebo as the three best firms.Over the past 10 years,the three firms have had good years and bad years.The following table shows their performance: -Refer to Scenario 5.3.Based on the 10 years' past performance,rank the companies' expected revenue,highest to lowest:

Scenario 5.2: Randy and Samantha are shopping for new cars (one each).Randy expects to pay $15,000 with 1/5 probability and $20,000 with 4/5 probability.Samantha expects to pay $12,000 with 1/4 probability and $20,000 with 3/4 probability. -Refer to Scenario 5.2.Randy's expected expense for his car is

Scenario 5.3: Wanting to invest in the computer games industry,you select Whizbo,Yowzo and Zowiebo as the three best firms.Over the past 10 years,the three firms have had good years and bad years.The following table shows their performance: -Refer to Scenario 5.3.The expected revenue from all three companies combined is

Figure 5.2 -The individual pictured in Figure 5.2

Reginald enjoys hunting whitetail deer.He has a dilemma of deciding each morning where to locate his hunting stand.Reginald would like to choose the location that gives him the deer with the highest Pope and Young score in the smallest amount of time.Reginald will also kill the first deer he sees that offers any Pope and Young score.His utility is a function of the Pope and Young score (b),time in minutes spent hunting (t)and wealth in dollars (w)and is given by If Reginald chooses stand A,he will kill a deer with Pope and Young score of 120 in 300 minutes.If Reginald chooses stand B,he will kill a deer with a Pope and Young score of 190 in 480 minutes.In dollars,how much would Reginald be willing to give up to learn of the outcomes from each stand?

Table 5.4 -Refer to Table 5.4.If outcomes 1 and 2 are equally likely at Job A,and if at Job B the $20 outcome occurs with probability .1,and the $50 outcome occurs with probability .9,then

Figure 5.3 -The individual pictured in Figure 5.3

Scenario 5.6: Consider the information in the table below,describing choices for a new doctor.The outcomes represent different macroeconomic environments,which the individual cannot predict. -Refer to Scenario 5.6.If the doctor is risk-averse,she would accept

Scenario 5.4: Suppose an individual is considering an investment in which there are exactly three possible outcomes,whose probabilities and pay-offs are given below: The expected value of the investment is $25.Although all the information is correct,information is missing. -Refer to Scenario 5.4.What is the variance of the investment?

Consider the following information about job opportunities for new college graduates in Megalopolis: Table 5.1 -Refer to Table 5.1.A risk-neutral individual making a decision solely on the basis of the above information would choose to major in

The law of large numbers:

People often use probability statements to describe events that can only happen once.For example,a political consultant may offer their opinion about the probability that a particular candidate may win the next election.Probability statements like these are based on __________ probabilities.