Fred Has a Utility Function U = 10P ⁰

question 39

Multiple Choice

Fred has a utility function U = 10P ^0.5 and also has an investment opportunity that will pay 25 with probability 0.4 and 100 with probability 0.6.What is the expected utility of this opportunity?

• A) 70.
• B) 75.
• C) 80.
• D) 83.7.
• E) None of the above.

---

Definitions:

Consumer Surplus

The gap between the total price consumers are ready and able to spend for a good or service and what they actually spend.

Inverse Demand Function

A mathematical function that expresses the price of a good or service as a function of the quantity demanded, illustrating how price changes with variations in demand.

Pretzels

A type of baked bread product made from dough most commonly shaped into a twisted knot, known for its distinctive flavor and texture.

Compensating Variation

An economic concept describing the amount of additional income that would leave someone as well off after a price change as they were before it.