introduced a model for studying the effects of taxation on investment. The following questions pertain to...
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introduced a model for studying the effects of taxation on investment. The following questions pertain to that model and use the same notation. Suppose that the investor (whose name is Avril) is risk loving with 5 utility-of-money function v (c) = c. Let p = 1/2, t = 13 (a) What is Avrils contingent consumption if x = 0? (b) What is Avrils contingent consumption if x = 10? (Express the consumption level in each state as a fraction, not a decimal.) 3 r8 = 2/1 b = and w = 10. (c) Draw Avrils budget constraint in a CC diagram. Be sure to ex-plain how you constructed your gure. (d) Show that Avril has the same expected utility at x = 10 and x = 0. Add an indifference curve to your diagram to illustrate this fact. (e) Using your diagram, explain why Avril will choose x = 0 if the 5 and will choose x = 10 if it 13 tax rate increases above t 5 13 decreases below t = introduced a model for studying the effects of taxation on investment. The following questions pertain to that model and use the same notation. Suppose that the investor (whose name is Avril) is risk loving with 5 utility-of-money function v (c) = c. Let p = 1/2, t = 13 (a) What is Avrils contingent consumption if x = 0? (b) What is Avrils contingent consumption if x = 10? (Express the consumption level in each state as a fraction, not a decimal.) 3 r8 = 2/1 b = and w = 10. (c) Draw Avrils budget constraint in a CC diagram. Be sure to ex-plain how you constructed your gure. (d) Show that Avril has the same expected utility at x = 10 and x = 0. Add an indifference curve to your diagram to illustrate this fact. (e) Using your diagram, explain why Avril will choose x = 0 if the 5 and will choose x = 10 if it 13 tax rate increases above t 5 13 decreases below t =
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To answer the questions we need to understand Avrils utilityofmoney function budget constraint and indifference curves a Avrils contingent consumption ... View the full answer
Related Book For
Intermediate accounting
ISBN: 978-0077647094
7th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson
Posted Date:
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