Question #58746

a) Rita faces the choice problem between two gambles. In gamble one, she wins 200 if a coin comes up head and loses 100 if the coin comes up tail. In gamble two, she wins 2,0000 if coin comes up head and loses 10,000 if coin comes tail. Assuming her initial wealth ) is 10,000 find: i) If a risk neutral Rita would accept either, both or neither of the gambles. ii) What would be her decision on the gambles given her utility function U √w ? iii) Compare and explain your results in (i) and (ii). b) A consumer’s utility function is given as U (x, y) In5x 2y678 9 Where x and y are two goods of consumption.
i) Find the indirect utility function of the consumer.
ii) Examine if Roy’s law is satisfied by the consumer’s demand function for y.
iii) Find the expenditure function of the consumer e (p, u) where price of
x = 1 and price of y = p.
iv) Find the Hicksian demand function hy(p,u) for commodity y, where the price of x
is 1 and the price of y is p.

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