Oliver takes his wealth of $1,000 to a casino.He can bet as much as he likes on the toss of a coin but the "house" takes a cut.If Oliver bets $x on heads, then if heads comes up, he gets $.8x and, if tails comes up, he pays $x.Similarly if he bets $x on tails and if tails comes up, he wins $.8x and, if heads comes up, he pays $x.Draw a graph with dollars contingent on heads and dollars contingent on tails on the two axes.Show Oliver's budget constraint.Oliver is an expected utility maximizer with the utility function U(h, t)= 1/2h² +1/2t², where h is his wealth if heads comes up and t is his wealth if tails comes up.Draw the highest indifference curve that Oliver can reach with his budget.What bets if any does he make?

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The Answer of Oliver takes his wealth of $1,000 to a casino.He can bet as much as he likes on the toss of a coin but the "house" takes a cut.If Oliver bets $x on heads, then if heads comes up, he gets $.8x and, if tails comes up, he pays $x.Similarly if he bets $x on tails and if tails comes up, he wins $.8x and, if heads comes up, he pays $x.Draw a graph with dollars contingent on heads and dollars contingent on tails on the two axes.Show Oliver's budget constraint.Oliver is an expected utility maximizer with the utility function U(h, t)= 1/2h² +1/2t², where h is his wealth if heads comes up and t is his wealth if tails comes up.Draw the highest indifference curve that Oliver can reach with his budget.What bets if any does he make?

Oliver Takes His Wealth of $1,000 to a Casino