Fred is thinking of starting a bowling alley near a college campus. fred is an expected utility maximizer with utility function: u(w) = 1 – (3000/w), where w is his wealth. fred’s total wealth is $12,000. with probability 0.2 the alley will be a failure and he’ll lose $9,000, so that his wealth will be just $3,000. with probability 0.8 it will succeed and his wealth will grow to $x. what is the smallest value of x that would be sufficient to make fred want to invest in the bowling alley rather than have a wealth of $12,000 with certainty?

Wo firms, a and b, each currently dump 50 tons of chemicals into the local river. the government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river. it costs firm a $100 for each ton of pollution that it eliminates before it reaches the river, and it costs firm b $50 for each ton of pollution that it eliminates before it reaches the river. the government gives each firm 20 pollution permits. government officials are not sure whether to allow the firms to buy or sell the pollution permits to each other. what is the total cost of reducing pollution if firms are not allowed to buy and sell pollution permits from each other? what is the total cost of reducing pollution if the firms are allowed to buy and sell permits from each other? a. $3,000; $1,500 b. $4,500; $3,500 c. $4,500; $4,000 d. $4,500; $2,500