Buck Columbus Is Thinking of Starting a Pinball Palace near a Large

question 10

Multiple Choice

Buck Columbus is thinking of starting a pinball palace near a large Midwestern university.Buck is an expected utility maximizer with a von Neuman-Morgenstern utility function, U(W) = 1 - (3,000/W) , where W is his wealth.Buck's total wealth is $12,000.With probability .2 the palace will be a failure and he'll lose $9,000, so that his wealth will be just $3,000.With probability .8 it will succeed and his wealth will grow to $x.What is the smallest value of x that would be sufficient to make Buck want to invest in the pinball palace rather than have a wealth of $12,000 with certainty?

• A)$75,000
• B)$14,250
• C)$36,000
• D)$48,000
• E)$15,000

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