Question

multiple choice

1 A risk taking decision maker displays:

▪ increasing marginal utility of money

▪ increasing utility of money

▪ constant marginal utility of money

▪ decreasing marginal utility of money

2 Uncertainty is present when:

▪ outcomes are unknown

▪ all probabilities are unknown

▪ all of the above

▪ all possibilities are unknown

3 Constrained optimization decisions are not encountered by: © • government agencies • non-profit organizations • profit organization • None of the above is correct

Answer 1

1) Increasing marginal utility.

( A person will be ready to tale risks only , if the utility he derives from the additional unit of money increases.Other options are wrong because,

* The concept of Utility of money diffrers from the concept of marginal utility .. Here, utility is measured as a whole.

*Risk neural person exhibits constant marginal utility.

* Risk averse person, exhibits diminishing marginal utility of money.

2)

All of the above.

( uncertainty occurs when outcomes and probabilities are not known. If outcomes are not known, we will find it difficult to take decisions. When outcomes and probabilities are unknown, uncertainty becomes risk.,

3

None of the above is correct.

( Most of the economic results are the result of an optimisation problem subject to one or a series of constraints.)