elow to answer the following questions. Assume that uity levels run from ot and
ID: 1120850 • Letter: E
Question
elow to answer the following questions. Assume that uity levels run from ot and income ranges from 0 to 5 thousand. Assume that income has two possible outcomes, $5000. Each outcome has a .5 chance of occurring. Figure 1: Utility function Outoome (8000) 19. Given the shape of the utility function in Figure 1, we could say that an economic agent would be when evaluating events with uncertain outcomes. b. risk neutral a. risk preferring, c. risk averse 20. In figure 1, the agent's expected utility function is represented by line segment a. ABC b. ADC c. AD d. BC 21. In figure 1, the level of the agent's expected utility is given by pont . 22. In figure 1, what is the utility value of the Certainty Equivalent of expected utility? 23. From the information above derive the expected value and variance of income. If the RAC coefficient is 0.0001, what would be the level of the risk premium the agent would require to participate in this opportunity? a. 4,000,000 b. 44.72 c. 400 d. 4,000Explanation / Answer
19. The correct answer is C.
20. The correct answer is B.
21. The correct answer is D.
22. The correct answer is C.
23. The correct answer is C.
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