Jeff Holds $50,000 Wealth Which Has a Utility of 7

question 23

Multiple Choice

Jeff holds $50,000 wealth which has a utility of 7.07 utils (assuming utility is the square root of wealth in thousand dollars) .He considers investing this in a gamble which has a 0.6 probability of increasing his total wealth to $100,000 and 0.4 probability of decreasing it to $30,000.What will be Jeff's expected utility from the gamble?

• A)15 utils
• B)8.19 utils
• C)3.2 utils
• D)12.12 utils

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Definitions:

First-In, First-Out Method

An accounting method for valuing inventory where the first items purchased are the first ones removed from inventory, reflecting costs in the order they were incurred.

Conversion Costs

Conversion costs are the total expenses incurred in turning raw material into a finished product, including labor and overhead costs.

Forming Department

A specific section within a manufacturing facility where raw materials are shaped or formed into parts for further production processes.

Weighted-Average Method

An inventory valuation method that calculates the cost of goods sold and ending inventory based on the average cost of all inventory items.