Lawrence's Expected Utility Function Is Pc^1/2₁ + (1 - P)c^1/2₂

question 15

Multiple Choice

Lawrence's expected utility function is pc^1/2₁ + (1 - p) c^1/2₂, where p is the probability that he consumes c₁ and 1 - p is the probability that he consumes c₂.Lawrence is offered a choice between getting a sure payment of $Z or a lottery in which he receives $400 with probability .30 or $2,500 with probability .70.Lawrence will choose the sure payment if

• A)Z > 1,040.50 and the lottery if Z < 1,040.50.
• B)Z > 2,500 and the lottery if Z < 2,500.
• C)Z > 2,090.50 and the lottery if Z < 2,090.50.
• D)Z > 1,681 and the lottery if Z < 1,681.
• E)Z > 1,870 and the lottery if Z < 1,870.

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Definitions:

Leather Jackets

Garments made from the skin of animals, primarily cows, processed and designed for wear primarily as outerwear.

Utility Function

A mathematical representation of a consumer's preference ranking for bundles of goods or services, used to predict economic behavior.

Curds

The solid parts of milk that coagulate when milk is soured or treated with enzymes, used in cheese-making.

Whey

A liquid by-product of cheese production, rich in proteins and lactose, commonly used as a dietary supplement and in various food products.