Mike's Utility Function Is U(c, D, H)= 4c + 14d

question 35

Multiple Choice

Mike's utility function is U(c, d, h) = 4c + 14d - d ² - 6h, where d is the number of hours per day that he spends driving around, h is the average number of hours per day spent driving around by other citizens of his town, and c is the amount of money he has to spend on other things than gasoline and auto repairs.There are 1,001 identical citizens in Mike's home town.Mike's expenses for gasoline and auto repairs amount to $.50 per hour for the time he spends driving.If Mike believes that his amount of driving won't affect the amount that others drive, how many hours per day will he choose to drive?

• A)7
• B)8
• C)6
• D)3
• E)0.50

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Definitions:

Systematic Risk

Systematic risk refers to the overall risk affecting the entire market or market segment, making it unavoidable through diversification.

Diversification

A risk management strategy that mixes a wide variety of investments within a portfolio.

Idiosyncratic Risk

The risk associated with an individual asset, which can be mitigated through diversification.

Systematic Risk

Systematic risk refers to the inherent risk that affects the entire market or a major market segment and cannot easily be mitigated through diversification.