Astrid's Utility Function Is U(H_A, C_A)= H_AC_A

question 45

Multiple Choice

Astrid's utility function is U(H_A, C_A) = H_AC_A.Birger's utility function is min{H_B, C_B}.If Astrid's initial endowment is no cheese and 13 units of herring and if Birger's initial endowments are 8 units of cheese and no herring, then where p is a competitive equilibrium price of herring and cheese is the numeraire, it must be that demand equals supply in the herring market.This implies that

• A)13/8 = p.
• B)8/p + 13/2p = 13.
• C)8/13 = p.
• D)8/(p + 1)+ 6.50 = 13.
• E)min{13, 8} = p.

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Definitions:

Internal Rate of Return Method

A capital budgeting method used to estimate the profitability of potential investments, calculated as the rate that makes the net present value of all cash flows zero.

Present Value Concepts

Financial principles used to determine the current value of future cash flows, taking into account specific rates of return or discount rates.

Net Cash Flows

The difference between a company's cash inflows and outflows within a defined period.

Annuity

A financial instrument that provides a consistent flow of payments to a person, mainly serving as a source of income for people in retirement.