Assume Brandon's Benefit Function for Water Is S(W)= √W and He

question 36

Multiple Choice

Assume Brandon's benefit function for water is S(W) = √W and he consumes water both in droughts,W_D,or in the rainy season,W_R.Assume his current consumption bundle is W_D = 400 and W_R = 100 and the probability of drought is 0.75.Brandon's certainty equivalent is:

• A) 250 units of water.
• B) 306.25 units of water.
• C) 18.75 units of water.
• D) 17.5 units of water.

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