-Ashton Has the Utility of Wealth Curve Shown in the Above

question 228

Multiple Choice

-Ashton has the utility of wealth curve shown in the above figure. He owns a sports car worth $30,000, and that is his only wealth. Ashton is a careless driver and there is a 30 percent chance that he will have an accident within a year. If he does have an accident, his car is worthless. Ashton would have the same expected utility as he currently has if his wealth was ________ and he faced no uncertainty.

• A) $30,000
• B) $21,000
• C) $12,000
• D) $9,000

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Definitions:

Variable Cost

Costs that vary directly with the level of production or output, increasing as production increases and decreasing as production decreases.

Net Operating Income

A company's total pre-tax profit, derived from its normal business operations, excluding non-operating income and expenses.

Special Order

Special Order refers to a one-time or unique request by a customer for a product or service that may differ from the standard offerings of a company.

Net Operating Income

A measure of a company's profitability from its core business operations, excluding expenses and revenues from investments and financing.