The Manager's Utility Function for Profit Is U $\pi$ )= 10 Ln

question 46

Multiple Choice

The manager's utility function for profit is U( $\pi$ ) = 10 ln( $\pi$ ) ,where $\pi$ is the dollar amount of profit.The manager is considering a risky decision with the four possible profit outcomes shown below.The manager makes the following subjective assessments about the probability of each profit outcome: $$\begin{array} { c c } \text { Probability } & \text { Profit outcome (\$) } \\\hline 0.05 & \$ 5,000 \\0.10 & \$ 10,000 \\0.35 & \$ 15,000 \\0.50 & \$ 20,000\end{array}$$ Given this utility function for profit,the utility of profit is

• A)equal to 198 for $20,000.
• B)increasing as profit gets larger,so the manager is risk-loving.
• C)decreasing as profit gets larger,so the manager is risk-averse.
• D)both a and b
• E)both a and c

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