1.) Suppose a project has two possible outcomes. There is a 70% chance that it brings a profit of 10,000. There is a 30% chance that it brings a profit of 4,900. Suppose a decision makers utility function can be described by U(w)=w^0.5. What is this project's certainty equivalence for this decision maker?
2.) If as price decreases by 8 percent, total revenue increases by 5 percent, what is true about demand?
- demand is perfectly inelastic
- demand is inelastic, but not perfectly inelastic
- demand is unit elastic
- demand is elastic