Question 9 In class, we developed a simple model with mug utility and money utility, and...

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Question 9 In class, we developed a simple model with mug utility and money utility, and we derived implica- tions for the reservation values of buyers, sellers, and choosers in endowment-effect experiments. This question asks you to think through several variants of that model. For all parts, assume that the person has wealth w = $10,000, and that (Total Utility) ) = (Mug Utility) + (Money Utility). (a) Let's begin with the case studied in class: Suppose that money utility is um (m) = m, and that mug utility is u(c,r) = µc+v(c-r) where v(x) = 5 nmug *x mug *nmug ** if x ≥ 0 if x ≤ 0. (i) Derive the reservation values for buyers, sellers, and choosers as a function of μ‚, nmug, and mug. (ii) Discuss how and why the three types differ. If it helps, consider the special case when μ = 2, 7mug = 0.75 and mug = 4. Question 9 In class, we developed a simple model with mug utility and money utility, and we derived implica- tions for the reservation values of buyers, sellers, and choosers in endowment-effect experiments. This question asks you to think through several variants of that model. For all parts, assume that the person has wealth w = $10,000, and that (Total Utility) ) = (Mug Utility) + (Money Utility). (a) Let's begin with the case studied in class: Suppose that money utility is um (m) = m, and that mug utility is u(c,r) = µc+v(c-r) where v(x) = 5 nmug *x mug *nmug ** if x ≥ 0 if x ≤ 0. (i) Derive the reservation values for buyers, sellers, and choosers as a function of μ‚, nmug, and mug. (ii) Discuss how and why the three types differ. If it helps, consider the special case when μ = 2, 7mug = 0.75 and mug = 4.

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A a i Buyers Reservation Value The buyers reservation value for this case is the point at which the total utility from the mug and money is maximized ... View the full answer