Suppose That Tim and Terri Have the Same Marginal Utility

question 34

Multiple Choice

Suppose that Tim and Terri have the same marginal utility from consuming ice cream cones: 100,50,25,and 12 for the first four cones,respectively.Suppose also that Tim is currently consuming 3 cones,while Terri is consuming none.The transfer of one cone from Tim to Terri would result in an overall ________ in utility equal to ________.

• A) increase;125
• B) increase;100
• C) increase;75
• D) decrease;125
• E) decrease;75

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Definitions:

CAPM

The Capital Asset Pricing Model, a theory used to determine the expected return on investment based on its inherent risk and the cost of capital.

Expected Return

The anticipated profit or loss from an investment based on its potential risks and rewards.

SML

The Security Market Line (SML) represents the relationship between the expected return of a market security and its risk, measured by beta, within the Capital Asset Pricing Model (CAPM).

Market Portfolio

A theoretical bundle of investments that includes every type of asset available in the market, with each asset weighted by its total market capitalization.