Mike has a decreasing marginal uity of income We know that Mike's income in greater than S10, but we de not know his exact inomeAdam offers Mika the folloeing bet Adam wil throw a fair coin (that is, heads and tals have equal probatilty) a heada. Mke pays Adam $10. ta Adam pays Mke S10What can we conclude from this infonmation?O Mike will reject the bet only it his income is high emoughtOb. Mike will reject the bet, independently of how high his income isOc Mke wil accept the bet independently of how high his income isOd Mke will accept the bet only if his income is high enoughtO Mka will always be indiferent between accepting and rejecting the bet

Here, it is given that Mike has a diminishing marginal utility of income with income greater than…

Mike has a decreasing marginal uty of ncome. We know that Ms income is greater than S10, but we de not know his eact inome Adam offers Mika the follneng bet Adam wil throw a far com (that is, heads and tals have equal probutilty) a heada. Mke pays Adam S1. H ta, Adan pays Mke S10 What can we conckude from his nfomation? OA Me will reject the bet only his income is high emought Ob. Mike willreject the bet, independently of how high his income is O Mke wil accept the bet independently of how Ngh his inome is Od Mke will accept the bet only if his income is high enought O Mke will always be indiferent between accepting and rejeting the bet

Mike has a decreasing marginal uty of ncome. We know that Ms income is greater than S10, but we de not know his eact inome Adam offers Mika the follneng bet Adam wil throw a far com (that is, heads and tals have equal probutilty) a heada. Mke pays Adam S1. H ta, Adan pays Mke S10 What can we conckude from his nfomation? OA Me will reject the bet only his income is high emought Ob. Mike willreject the bet, independently of how high his income is O Mke wil accept the bet independently of how Ngh his inome is Od Mke will accept the bet only if his income is high enought O Mke will always be indiferent between accepting and rejeting the bet

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter4: Utility Maximization And Choice

Section: Chapter Questions

Problem 4.12P

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Praxilla, who lived in ancient Greece, derives utility from reading poems and from eating cucumbers. Praxilla gets 30 units of marginal utility from her first poem 27 units of marginal utility from her second poem 24 units of marginal utility from her third poem, and so on, with marginal utility declining by three units for each additional poem. Praxilla gets six units of marginal utility for each of her next three cucumbers consumed, five units of marginal utility for each of her next three cucumbers consumed, four units of marginal utility for each of the following three cucumbers consumed, and so on, with marginal utility declining by one for every three cucumber consumed. A poem costs three bronze coins hut a cucumber costs only one bronze coin. Praxilla has 18 bronze coins. Sketch Praxillas budget set between poems and cucumbers, placing poems on the vertical axis and cucumbers on the horizontal axis. Start off with the choice of zero poems and 18 cucumbers, and calculate the changes in marginal utility of moving along the budget line to the next choice of one poem and 15 cucumbers. Using this step-by-step process based on marginal utility, create a table and identify Praxillas utilityâ€”maximizing choice. Compare the marginal utility of the two goods and the relative prices at the optimal choice to see if the expected relationship holds. Hint: Label the table columns: 1) Choice, 2} Marginal Gain from More Poems, 3) Marginal Loss from Fewer Cucumbers, 4) Overall Gain or Loss, 5) Is the previous choice Optimal? Label the table rows: 1) 0 Poems and 18 Cucumbers, 2) 1 Poem and 15 cucumbers, 3) 2 Poems and 12 cucumbers, 4) 3 Poems and 9 Cucumbers, 5) 4 Poems and 6 cucumbers 6) 5 Poems and 3 Cucumbers, 7) 6 Poems and 0 Cucumbers.
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