Question 4. (35%)

Question 4. (35%) There are three acceptance called Alex, Beth, and Charlie. All three of them are accident averse over money, with the aforementioned amount action for money: v(x dollars) = 8< : p x x  0 ????3 2 p ????x x < 0 All three of them are additionally accident afraid over Apple watches, with the aforementioned amount action for Apple watches: v(y Apple watches) = 8< : 10y y  0 20y y < 0 Total account is the sum of the gain/loss account for Apple watches and the gain/loss utility for money. The advertence point is the cachet quo, that is, a person's antecedent endowment. Alex owns an Apple watch and is accommodating to advertise it for a amount of a dollars or more. Beth does not own an Apple watch and is accommodating to pay up to b dollars for affairs it. Charlie does not own an Apple watch, and ethics it at c dollars (that is, he prefers accepting an Apple watch over getting x dollars if x < c, and prefers accepting x dollars if x > c). 1. Solve for a, b, and c. 2. Instead, accept Alex, Beth, and Charlie are alone accident afraid over Apple watches, but not over money. That is, their amount action for money is instead: v(x dollars) = 8< : p x x  0 ???? p ????x x < 0 and their amount action for Apple watches remains: v(y Apple watches) = 8< : 10y y  0 20y y < 0 Solve for a, b, and c. 3. Instead, accept Alex, Beth, and Charlie are not accident averse: v(x dollars) = 8< : p x x  0 ???? p ????x x < 0 and v(y Apple watches) = 10y 3 Solve for a, b, and c. 4. Accept Alex, Beth, and Charlie are not accident afraid (as in the antecedent question), but their amount for an Apple watch varies with ownership. Speci cally, the amount of the Apple watch is 10 for addition who does not currently own an Apple watch , and 20 for someone who currently owns an Apple watch . Solve for a, b, and c. 4

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