Adam Has Wealth of $40,000 as Long as His Business

question 31

Multiple Choice

Adam has wealth of $40,000 as long as his business does not burn down. However, there is a 50% probability that his business will burn down, causing a loss of $30,000 and leaving him with $10,000 of wealth. Adam's utility function is given by U = W^0.5, where W is wealth. What is Adam's expected utility?

• A) 150
• B) 48
• C) 66
• D) 120

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Definitions:

FIFO

An inventory valuation method where the first items produced or purchased are the first ones considered sold, standing for "First-In, First-Out."

Departmental Production Report

A detailed document that summarizes the production activities and outcomes of a specific department within a manufacturing company.

Equivalent Units

A concept in cost accounting used to express a quantity of partially completed goods in terms of fully completed units.

Physical Flow

The actual movement of goods or materials through a production process, from receipt of raw materials to the delivery of final products.