Question
You own a vineyard and grow grapes.Youget utility from grapes according to the utility function U (G) =G G.(The utility function = the square root
You own a vineyard and grow grapes.Youget utility from grapes according to the utility function
U (G) =G
G.(The utility function = the square root of G) The grape yield in your vineyard depends on the weather.If it is sunny, you will have 1000 units of grapes but if it is rainy your yield will only be 100 units of grapes.The probability of rain is 0.20.
a, (4 points) What is your expected grape yield?
b. (4 points) What is your expected utility?
c. (4 points) Calculate your certainty equivalent amount of grapes.
d. (2 points) Calculate your risk premium.
e. (4 points) Write the equation for your constant expected grape yield.
f. (12 points) Graph your analysis using an indifference curve, the constant expected consumption line and the guaranteed consumption line.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started