Figure 27-5

question 103

Multiple Choice

Figure 27-5.The figure shows a utility function for Dexter.
-Refer to Figure 27-5.From the appearance of the graph,we know that

• A)Dexter's level of satisfaction increases by more when his wealth increases from $1,001 to $1,002 than it does when his wealth increases from $1,000 to $1,001.
• B)Dexter's level of satisfaction increases by less when his wealth increases from $1,001 to $1,002 than it does when his wealth increases from $1,000 to $1,001.
• C)Dexter's level of satisfaction increases by the same amount when his wealth increases from $1,001 to $1,002 as it does when his wealth increases from $1,000 to $1,001.
• D)None of the above answers can be inferred from the appearance of the utility function.

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Definitions:

Investment Analysis

The process of evaluating an investment for profitability and risk, ultimately leading to a decision on its appropriateness.

Average Rate of Return

A financial ratio that indicates the profitability of an investment, calculated by dividing the average annual profit by the initial investment cost.

Liquidity

The ease with which an asset can be converted into cash without significantly affecting its price.

Capital Investment Analysis

The process of assessing the profitability and risk of potential investment opportunities involving capital expenditures.