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

question 2

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 risk premium is:

• A) 250 units of water.
• B) 325 units of water.
• C) 17.5 units of water.
• D) 18.75 units of water.

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Definitions:

Stimulant

A substance that raises levels of physiological or nervous activity in the body, often used to increase alertness or energy.

Nembutal

A barbiturate drug used primarily in the past for sedation, inducing sleep, or as a pre-anesthetic agent, known for its potential for dependence and overdose.

Seconal

A brand name for secobarbital, a barbiturate drug used as a sedative and hypnotic medication.

Morphine

A powerful opiate analgesic drug derived from the opium poppy, used to relieve severe pain.