Suppose you are offered a gamble in which you win $1,000 1/3 half the time but lose $800 2/3 half the time. If you are risk lover will you take the gamble? What will your expected payoff be?
What will be an ideal response?
The expected payoff would be:
1/3 (+$1,000 ) + 2/3 (-$800 ) = -$200.
From this calculation, we know that risk-neutral individuals would not take the gamble, but it is not clear what a risk-loving individual would do.
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In a marketplace, the rental price of apartments is determined by:
A) negotiations between landlords and regulators. B) negotiations between renters and regulators. C) negotiations between renters and landlords. D) negotiations between politicians and regulators.
Its critics claim that when advertising ____ the elasticity of demand, firms are able to ____
a. decreases; lower their advertising budget b. increases; become more competitive c. increases; increase their advertising budget d. decreases; charge a larger mark-up over marginal cost