Question

Bernoulli’s log utility function for wealth reflects decreasing _____ with increasing wealth

1. Assets
2. Risk
3. Marginal utility
4. Cost
5. None of the above

Linear utility functions model:

1. Risk-neutral attitudes
2. Risk-seeking attitudes
3. Risk-averse attitude
4. None of the above

Concave utility functions model:

1. Risk-neutral attitudes
2. Risk-seeking attitudes
3. Risk-averse attitudes
4. All of the above.

John Doe is a rationale person whose satisfaction or preference for various amounts of money can be expressed as a function U(x) = (x/100)^2, where x is in $. How much satisfaction does $40 bring to John (to the nearest thousandths)?

What does U(x) show about John’s incremental satisfaction with respect to x?

1. Incremental satisfaction increases with increasing x
2. Incremental satisfaction decreases with increasing x
3. Incremental satisfaction is exactly equal to increase in x

If we limit the range of U(x) between 0 and 1.0, then we can use this function to represent John’s utility (i.e. U(x) becomes his utility function). How does his utility function look like?

1. Convex
2. Convcave
3. Straight line

The shape of John's utility function shows that he is willing to accept _______ risk than a risk-neutral person.

1. the same
2. more
3. less

Answer 1

1.Q :

option c is correct

Bernoulli's log utility function for wealth W reflects decreasing marginal utility with increasing wealth.

3.Q :  The correct choice is C

There is a class of utility functions that model attitudes with respect to risk-averse, risk-seeking, and risk-neutral behaviors. Concave utility functions model risk-averse attitudes.

4.Q :  shows that incremental satisfaction increases with increasing x as in a concave function

5.Q : Utility function is related to x^2 and is thus, option is concave

6.Q : less (or) lower

du²/dx² = 1/500 > 0 -