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2 of 5 2. Assume you have the following von Neumann-Morgenstern utility function: U(W) = 5000 (50 - 1000 where w denotes wealth. [25 marks

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2 of 5 2. Assume you have the following von Neumann-Morgenstern utility function: U(W) = 5000 (50 - 1000 where w denotes wealth. [25 marks in total.] a) Work out the utility maximisation problem and illustrate the answer in a diagram. (5 marks) b) Briefly explain what Arrow-Pratt coefficients of absolute risk aversion (ARA) and relative risk aversion (RRA) seek to measure. Find out and interpret their values for the above utility function. (10 marks)

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