Sally Kink Is an Expected Utility Maximizer with Utility Function

question 2

Multiple Choice

Sally Kink is an expected utility maximizer with utility function pu(c₁) + (1 - p) u(c₂) , where for any x < 6,000, u(x) = 2x, and for x greater than or equal to 6,000, u(x) = 12,000 + x.

• A)Sally will be risk averse if her income is less than $6,000 but risk loving if her income is more than $6,000.
• B)Sally will be risk neutral if her income is less than $6,000 and risk averse if her income is more than $6,000.
• C)For bets that involve no chance of her wealth exceeding $6,000, Sally will take any bet that has a positive expected net payoff.
• D)Sally will never take a bet if there is a chance that it leaves her with wealth less than $12,000.
• E)None of the above.

---

Definitions:

Total Revenue

The total income received from sales of goods or services before any expenses are subtracted.

Elastic

A term used in economics to describe a situation where the quantity demanded or supplied of a good is sensitive to changes in its price.

Price Elasticity

An indicator showing the demand for a good's responsiveness to its price alterations.

Consumer Purchases

Transactions in which individuals buy goods or services for personal use or consumption.