Consider the following five lottery tickets: l1 = ($100, .5; $10, .5); l2 = ($110, .5; $10, .5); l3 = ($55, 1); l4 = ($110, .5; $0, .5); l5 = ($100, .7; $10, .3). Refer to the list of lotteries in the question above. Draw two coordinate diagrams where one could draw some of those two-outcome lotteries when we consider fixed probabilities and varying prizes. In one diagram you can draw all but one of the lotteries, in the other you can draw exactly two lotteries.

(a) In each diagram specify the probability of each state and which lotteries correspond to which points in the diagram.

(b) Draw in dashed indifference curves through the lotteries for individuals who are risk neutral.

(c) Draw dotted indifference curves for a risk averse individual.

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The diagrams below shows possible lotteries a 4 possible points are marked Here 1 11 is equivalent t... View the full answer