Sally Kink Is an Expected Utility Maximizer with Utility Function

question 7

Multiple Choice

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

• A)For bets that involve no chance of her wealth exceeding $2,000, Sally will take any bet that has a positive expected net payoff.
• B)Sally will be risk averse if her income is less than $2,000 but risk loving if her income is more than $2,000.
• C)Sally will be risk neutral if her income is less than $2,000 and risk averse if her income is more than $2,000.
• D)Sally will never take a bet if there is a chance that it leaves her with wealth less than $4,000.
• E)None of the above are true.

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Definitions:

Scientific Management

A management theory developed by Frederick W. Taylor, emphasizing efficiency, systematic planning, and standardized procedures.

Telephone Sales

A method of direct marketing in which salespeople use telephone calls to contact prospective customers and sell products or services.

Rationality

The quality of being based on or in accordance with reason or logic, often guiding decision-making processes.

Planning And Efficiency

The process of organizing activities in a way that maximizes productivity and minimizes waste or unnecessary effort.