ECO 301 Intermediate Microeconomics Week 10 Homework Problem Answer

ECO 301 Intermediate Microeconomics Week 10 Homework Problem Answer

ECO 301 Intermediate Microeconomics Week 10 Homework Problem Answer

Chapter 17: 17.1(a-c), 17.2(a-d), 17.6(a-b), 17.8(a-c), 17.10(a-d)

17.1 A queen gives a dragon-slaying hero a choice between two prizes. The first provides $100,000 a day for d days; the second provides an amount of money that doubles in size each day for d days starting from a penny (so one penny the first day, two pennies the second, four pennies the next, etc.).

1. Provide the formula for the amount of money after d days provided by each prize.
2. Graph your results for values of d ranging from 0 to 31 days.
3. Using your graph, advise the hero on which prize he should choose depending on the number of days d involved in the queen’s offer.

17.2 Imagine that you are a subject in one of Maurice Allais lab experiments involving the same four gambles as in the chapter. Gamble A provides a 89% chance of winning $1,000, a 10% chance of winning $5,000, and a 1% chance of winning nothing. Gamble B provides a 100% chance of winning $1,000. Gamble C provides an 11% chance of winning $1,000 and an 89% chance of winning nothing. Finally, gamble D provides a 10% chance of winning $5,000 and a 90% chance of winning nothing. Your utility function over money is Ux = SQRT (x).

17.6 Julia visits her local grocery store to buy a jar of jam. She is overwhelmed to see the twenty-four varieties shown in Figure 17.3 there.

•Suppose she makes her decision by evaluating every pairwise comparison among the twenty four varieties. How many comparisons does she have to make, and how long will it take her if she requires 1 second for each comparison?b. Suppose she uses a different system for making her decision. First, she considers each of the separate categories separately and m the pairwise comparisons just within the category to

1.find the best. Then, she takes the best from each category and makes all the pairwise comparisons among them. Has she reduced the number of comparisons and total decision time using this system?

17.8 In period 1, Mr. Consistency and Mr. Hyperbola are each trying to come up with a plan for how much they will exercise in period 2. Exercise is less enjoyable than other leisure activities, leading to a loss of 100 in terms of period 2 utils. Exercise provides health benefits, realized in period 3, leading to a gain of 250 in terms of period 3 utils. They put the following weights on utilities each period:

According to this table, Mr. Consistency’s weight on future utility falls by half each period. Mr. Hyperbola’s weights are related to Mr. Consistency’s; the difference is that Mr. Hyperbola’s are reduced a further 30% for periods after the current one.

17.10 Trans-fatty potato chips are competitively supplied. The supply curve is Qs = P/2.

Demand for these potato chips is QD = 100 – 2P:

•Compute the equilibrium price, quantity, consumer surplus, producer surplus, and social welfare.

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