SOLVED

11) The big tradeoff is a tradeoff between A) equity and efficiency. B) equality and inequality. C) marginal cost and marginal benefit. D) monopoly and perfect competition. 12) Jennifer has the utility of wealth curve shown in the figure above. She owns a car worth $15,000, and that is her only wealth. There is a 10 percent chance that Jennifer will have an accident within a year. If she does have an accident, her car is worthless. What is Jennifer’s expected wealth? A) $15,000 B) $12,000 C) $13,500 D) $9,000 13) Jennifer has the utility of wealth curve shown in the figure above. She owns a car worth $15,000, and that is her only wealth. There is a 10 percent chance that Jennifer will have an accident within a year. If she does have an accident, her car is worthless. What is Jennifer’s expected utility? A) 60 B) 90 C) 98 D) 50 14) Jennifer has the utility of wealth curve shown in the figure above. She owns a car worth $15,000, and that is her only wealth. There is a 10 percent chance that Jennifer will have an accident within a year. If she does have an accident, her car is worthless. Jennifer would have the same expected utility as she currently has if her wealth was ________ with no risk. A) $13,500 B) $12,000 C) $4,500 D) $9,000 15) Jennifer has the utility of wealth curve shown in the figure above. She owns a car worth $15,000, and that is her only wealth. There is a 10 percent chance that Jennifer will have an accident within a year. If she does have an accident, her car is worthless. The maximum amount that Jennifer is willing to pay for auto insurance is A) $3,500. B) $2,000. C) $4,500. D) $9,000. 16) Oligopoly differs from perfect competition because a single competitive firm’s behavior does not affect the behavior of its competitors while the behavior of a single oligopolistic firm does affect the behavior of its rivals. 17) Jennifer owns a car worth $15,000, and that is her only wealth. There is a 10 percent chance that Jennifer will have an accident within a year. An insurance company agrees to pay a car owner like Jennifer the full value her car, if the car owner buys the company’s insurance policy. The company’s operating expenses are $1,000. What is the minimum insurance premium that the company is willing to accept? A) $2,500 B) $2,000 C) $1,500 D) $1,000 18) Jennifer has the utility of wealth curve shown in the figure above. She owns a car worth $15,000, and that is her only wealth. There is a 10 percent chance that Jennifer will have an accident within a year. If she does have an accident, her car is worthless. An insurance company agrees to pay a car owner like Jennifer the full value her car, if the car owner buys the company’s insurance policy. The company’s operating expenses are $1,000. Jennifer will A) not buy the company’s policy because the minimum premium that the company is willing to accept is greater than the maximum premium Jennifer is willing to pay. B) buy the company’s policy because the minimum premium that the company is willing to accept is lower than the maximum premium Jennifer is willing to pay. C) buy the company’s policy because the minimum premium that the company is willing to accept is the same as the maximum premium Jennifer is willing to pay. D) not buy the company’s policy because Jennifer is risk neutral.