Jacob Is Thinking of Buying a $1 Lottery Ticket

question 81

Multiple Choice

Jacob is thinking of buying a $1 lottery ticket.In Lottery A,his odds of winning are 1 out of 1,000,and he may win $500.In Lottery B,his odds of winning are 1 out of 5,000,but he may win $5,000.What will Jacob choose to do based on expected value theory

• A) Buy a ticket from Lottery A because it has a higher expected value. 
• B) Not buy either ticket because both lotteries have very low odds of winning. 
• C) Buy a ticket from Lottery B because it has a higher expected value. 
• D) Buy either ticket because both lotteries have the same expected value.

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Definitions:

Opportunity Cost

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

Production Possibilities Frontier

A graph that shows the combinations of two goods that an economy can produce using all available resources and technology efficiently.

Constant

A value or factor that does not change in mathematical expressions or experiments, representing stability within a specified context.