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.

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Definitions:

Competitively Organized

A market structure where multiple firms strive to sell similar products or services, often leading to innovation and lower prices.

Economic Profits

The difference between total revenue and total costs, including both explicit and implicit costs, representing surplus earnings above normal expectations.

Profit-Maximizing

The way in which a business figures out the best price and quantity of production for optimal profit.

Output Level

The amount of goods or services produced by a company, industry, or economy within a specific period, often measured to assess productivity and efficiency.