Suppose Lily's Indifference Curves Are Defined as U = √F_S

question 11

Multiple Choice

Suppose Lily's indifference curves are defined as U = √F_S + √F_H,where F_S is consumption during sunny weather and F_H is consumption during a hurricane.Lily receives 64 units of food when it is sunny and 16 units of food when there is a hurricane.What is the certainty equivalent of the expected food consumption bundle if the probability of sunshine is Π = 0.5?

• A) 6
• B) 12
• C) 25
• D) 36

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