Michaela has reference-dependent preferences over mugs (c) and money (c) - with reference points r and...

 

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Michaela has reference-dependent preferences over mugs (c₁) and money (c₂) - with reference points r₁ and r2, respectively represented by the following utility function U(C₁,C₂,r1,₂)= v(3C₁-3r₁) + V(C₂-r₂) where v(x) = x for x ≥ 0 and v(x) =3x for x < 0 Suppose that Michaela's initial endowment of money is zero, and that she starts with zero mugs. Assume that Michaela does not have a mug and is not expecting to purchase a mug. What are Michaela's buying prices, pb, for a mug? Michaela has reference-dependent preferences over mugs (c₁) and money (c₂) - with reference points r₁ and r2, respectively represented by the following utility function U(C₁,C₂,r1,₂)= v(3C₁-3r₁) + V(C₂-r₂) where v(x) = x for x ≥ 0 and v(x) =3x for x < 0 Suppose that Michaela's initial endowment of money is zero, and that she starts with zero mugs. Assume that Michaela does not have a mug and is not expecting to purchase a mug. What are Michaela's buying prices, pb, for a mug?

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Michaela Utility Function is given by Uc1r1c2r2 v3c13r1 vc2r2 3vc... View the full answer