Sally Kink Is an Expected Utility Maximizer with Utility Function

question 1

Multiple Choice

Sally Kink is an expected utility maximizer with utility function pu(c₁) + (1 - p) u(c₂) , where for any x < 7,000, u(x) = 2x, and for x greater than or equal to 7,000, u(x) = 14,000 + x.

• A)Sally will be risk averse if her income is less than $7,000 but risk loving if her income is more than $7,000.
• B)Sally will be risk neutral if her income is less than $7,000 and risk averse if her income is more than $7,000.
• C)Sally will never take a bet if there is a chance that it leaves her with wealth less than $14,000.
• D)For bets that involve no chance of her wealth exceeding $7,000, Sally will take any bet that has a positive expected net payoff.
• E)None of the above.

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Definitions:

Equivalent Units

A concept in cost accounting used to allocate costs to partially completed goods, treating them as an equivalent number of fully completed units.

Physical Count

The process of manually counting the actual inventory on hand at a particular time to verify the quantities listed in accounting records.

Job Order Cost System

An accounting system that tracks costs individually for each job, rather than using a standard method for all jobs, suitable for companies producing unique or custom products.

Equivalent Units

a concept used in cost accounting to indicate a standard amount of work done on incomplete or partially manufactured units.