Exam 13: Pure Strategies With Uncertain Payoffs

-Consider Figure 13.5, which depicts the risk-return indifference curves for three investors. If the projects are mutually exclusive, which project has the highest expected rate of return for investor 1?

Suppose that Mr. Kent is planning to fly to Kansas to visit his silver-haired mother for 16days. Mr. Kent lives in New York City and will depart from LaGuardia airport. Mr.Kent's utility function for the trip is U = 2T ^1/2, where T is the length of the visit in days. Due to chronic congestion and weather delays there is a 10 percent probability that the flight will be cancelled and Mr. Kent is forced to cancel his trip. The expected utility of this trip is:

Suppose that an individual's utility of money function is U = 25M. This individual can best be described as risk:

Suppose that a raffle ticket costs $10 and has a jackpot of $2,500. For this raffle to be considered a fair gamble, the probability of not winning must be:

188 -Consider the pricing game depicted in Figure 13.6. Payoffs are in millions of dollars. Suppose that firm A believes that regardless of its strategy, there is a 85 percent chance that firm B will charge a high price and an 15 percent chance that firm B will charge a low price. What is the riskier strategy profile for firm A?