Pat's Utility Function Is U(y)= Y^1/2 and His Income Is

question 22

Multiple Choice

Pat's utility function is u(y) = y^1/2 and his income is $100. He is offered a gamble paying $300 with probability 1/2 and $0 with probability 1/2. What is the certainty equivalent of this gamble?

• A)100
• B)150
• C)50
• D)75

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Definitions:

Law of Diminishing

The principle that states that as one input variable is incrementally increased, there will be a point at which the added output per unit of input will start to decrease, holding all other inputs constant.

Price-elasticity

A measure of how much the quantity demanded or supplied of a good responds to a change in its price.

Digital Media

A form of media that uses digital technology for distribution and presentation of content.

iPads

A line of tablet computers designed and marketed by Apple Inc., which run the iOS and iPadOS mobile operating systems.