Suppose Brandon's Indifference Curves Are Defined as U = (3/4)√F_S

question 47

Multiple Choice

Suppose Brandon's indifference curves are defined as U = (3/4) √F_S + (1/4) √F_H,where F_S is consumption during sunny weather and F_H is consumption during a hurricane.Further suppose Brandon receives 64 units of food when it is sunny and 16 units when there is a hurricane.What is the risk premium if the probability of sunshine is Π = 0.75?

• A) 52 units of food
• B) 24 units of food
• C) 49 units of food
• D) 3 units of food

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