Sally Kink Is an Expected Utility Maximizer with Utility Function

question 11

Multiple Choice

Sally Kink is an expected utility maximizer with utility function pu(c₁) + (1 - p) u(c₂) , where for any x < 8,000, u(x) = 2x, and for x greater than or equal to 8,000, u(x) = 16,000 + x.

• A) Sally will never take a bet if there is a chance that it leaves her with wealth less than $16,000.
• B) Sally will be risk neutral if her income is less than $8,000 and risk averse if her income is more than $8,000.
• C) Sally will be risk averse if her income is less than $8,000 but risk loving if her income is more than $8,000.
• D) For bets that involve no chance of her wealth exceeding $8,000, Sally will take any bet that has a positive expected net payoff.
• E) None of the above.

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Definitions:

Lactic Acid

An organic compound produced in muscles during intense activity, often associated with muscle fatigue.

Glycolytic

Relating to or involving the breakdown of glucose by enzymes, producing energy and pyruvic acid.

ATP

Short for Adenosine Triphosphate, a molecule that carries energy within cells for metabolism.

Vascular System

The complex network of blood vessels that circulate blood throughout the body, including arteries, veins, and capillaries.