-Adam Has 3 Apples and 3 Oranges

question 247

Multiple Choice

-Adam has 3 apples and 3 oranges. Eve has 2 apples and 2 oranges. The marginal utilities for Adam and Eve are summarized in the above table. Adam asks Eve to exchange one of her apples for an orange.

• A) Eve will be willing to make the exchange, because her total satisfaction will remain unchanged.
• B) Eve will be willing to make the exchange, because her total satisfaction will increase.
• C) Eve will be unwilling to make the exchange, because she loses 5 utils of satisfaction.
• D) Eve will be unwilling to make the exchange, because she loses 15 utils of satisfaction.

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Definitions:

Mean-Variance Efficient Portfolio

A portfolio constructed to have the highest possible return for a given level of risk, or equivalently, the lowest risk for a given level of expected return, according to Harry Markowitz's theory.

Firm-Specific Variances

Variability in a firm's stock price or returns that is attributable to factors unique to that firm, as opposed to general market factors.

Macroeconomic Factor

A wide-scale economic condition or variable that influences a broad economy and consequently affects individual businesses and financial markets.

Evolution of Beta

The evolution of beta refers to changes in the beta coefficient of an asset or portfolio over time, indicating variations in its volatility in relation to the broader market.