1. Managerial Economics-Charles W. Upton
A Numerical Problem
Managerial Economics-Charles W. Upton

2. A Numerical Problem
A Numerical Problem

3. Show that this individual is a risk averter
A Numerical Problem
Show that this individual is a risk averter
A Numerical Problem

4. A Numerical Problem
Diminishing MU
A Numerical Problem

5. A Numerical Problem Income is $1500.
He has risky pork belly contract with a 50% chance of winning $300 and a 50% chance of losing $300.
A Numerical Problem

6. Compute expected utility
A Numerical Problem
Income is $1500.
He has risky pork belly contract with a 50% chance of winning $300 and a 50% chance of losing $300.
Compute expected utility
A Numerical Problem

7. A Numerical Problem E(U) = 0.5(1297) + 0.5(1833) = 1565

8. A Numerical Problem
A broker offers to let him out of his contract for $75.
Should he take the offer?
A Numerical Problem

9. A Numerical Problem
Yes
A Numerical Problem

10. A Numerical Problem
If he keeps the contract E(U) = 1565, equal to $1400 of certain income. This way, his certain income is $1425.
A Numerical Problem

11. End
©2003 Charles W. Upton
A Numerical Problem