-Nancy's Utility of Wealth Curve Is Given in the Above

question 27

Multiple Choice

-Nancy's utility of wealth curve is given in the above figure. Option A gives Nancy $100 for sure. Option B gives Nancy $50 half the time and $150 half the time. Nancy's expected utility of option A

• A) is greater than the expected utility of option B.
• B) is the same as the expected utility of option B.
• C) is less than the expected utility of option B.
• D) could be either greater or less than the expected utility of option B.

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Definitions:

Sunk Cost

A sunk cost is an expense that has already been incurred and cannot be recovered, often considered irrelevant for future business decisions.

Opportunity Cost

The cost of the next best alternative foregone as a result of making a decision.

Incremental Revenue

Additional income generated from a new sale, project, or strategy, over and above existing revenue streams.

Incremental Costs

Costs that change as a result of a new decision or alternative action, also known as marginal costs.