Reference no: EM131419804
Imagine that we want to value a cultural festival from the point of view of a risk-averse person.The person's utility is given by U(I) where $I is her income. She has a 50 percent chance of being able to get vacation time to attend the festival. If she gets the vacation time, then she would be willing to pay up to $S to attend the festival. If she does not get the vacation time, then she is unwilling to pay anything for the festival.
a. What is her expected surplus from the cultural festival?
b. Write an expression for her expected utility if the festival does not take place.
c. Write an expression incorporating her option price, OP, for the festival if the festival takes place. (To do this, equate her expected utility if the festival takes place to her expected utility if the festival does not take place. Also, assume that if the festival does take place, then she makes a payment of OP whether or not she is able to attend the festival.)
d. Manipulate the expression for option price to show that the option price must be smaller than her expected surplus. (In doing this, begin by substituting 0.5S e for OP in the equation derived in part
e. Also keep in mind that because the person is risk averse, her marginal utility declines with income.) e. Does this exercise suggest any generalizations about the benefits of recreational programs when individuals are uncertain as to whether they will be able to participate in them?
|
Sales in the month of sale
: ABC collects 42 percent of its sales in the month of sale and the remainder is collected in the following month. What is the amount of the February cash collections?
|
|
What is the firm net float
: ABC Company writes 54 checks a day for an average amount of $986 each.These checks generally clear the bank in 5 days. In addition, the firm generally receives an average of $11,662 a day in checks that are deposited immediately. Deposited funds a..
|
|
How does the data impact global brand development
: MBA 635- How would organizational leaders apply and use the data for implementing best practices in corporate culture and social responsibility? How does the data impact global brand development?
|
|
Are there any special challenges in the non-hospital setting
: What are the differences in applying the model to the non-hospital setting (e.g. American Heart Association, Lupus Foundation, Alzheimer's Association)? Are there any special challenges in the non-hospital setting
|
|
What is her expected surplus from the cultural festival
: Write an expression incorporating her option price, OP, for the festival if the festival takes place. (To do this, equate her expected utility if the festival takes place to her expected utility if the festival does not take place. Also, assume tha..
|
|
Why were cars important in the years of the 50s
: Why were cars important in the years of the 50's?
|
|
What are the advantages of ambush marketing
: What are the advantages and disadvantages (risks and consequences) of ambush marketing? What was Bavaria Beer hoping to achieve through its ambush marketing tactics?
|
|
What were the details of the new deal
: What were the details of the New Deal? Was the New Deal a "good deal" for all Americans? Were there any groups opposed to the New Deal? Were some concerned over the increase in government power?Why was President Andrew Johnson impeached and what im..
|
|
Capital budgeting decision on new branch
: 1. What is the cash flow for the branch's 20-year life 2. Calculate the NPV, Profitability index, and Internal rate of return (IRR). 3. Should the project be accepted? Why?
|