Richard's preferences over chocolate, c, and money, m, can be represented by the utility function u...

 

Transcribed Image Text:

Richard's preferences over chocolate, c, and money, m, can be represented by the utility function u (c, m) : 6c+m+6µ (c-rc) +μ (m_rm) where re is his chocolate reference point, rm is his money reference point, and the function is defined as X X 0 x x < 0 1. If his reference point is the status quo (that is, his initial endowment), what is the maximum price Richard would be willing to pay to buy a chocolate? 2. If his reference point is the status quo, what is the minimum price Richard would be willing to accept to sell a chocolate he already owned? Richard's preferences over chocolate, c, and money, m, can be represented by the utility function u (c, m) : 6c+m+6µ (c-rc) +μ (m_rm) where re is his chocolate reference point, rm is his money reference point, and the function is defined as X X 0 x x < 0 1. If his reference point is the status quo (that is, his initial endowment), what is the maximum price Richard would be willing to pay to buy a chocolate? 2. If his reference point is the status quo, what is the minimum price Richard would be willing to accept to sell a chocolate he already owned?

Answer rating: 100% (QA)

question states that reference point is equal to the endowment hence the initial money with richard ... View the full answer