Using the Following:
the Manager's Utility Function for Profit Is $\pi$

question 52

Multiple Choice

Using the following:
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:
$$\begin{array} { c c } \text { Prabability } & \text { Profit outcome (\$) } \\\hline 0.05 & \$ 5,000 \\0.10 & \$ 10,000 \\0.35 & \$ 15,000 \\0.50 & \$ 20,000\end{array}$$
-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