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:

Services

Activities or functions that are provided by individuals or organizations to fulfill the needs or wants of others.

Offshoring

Sending work or jobs to another country to cut a company’s costs at home (sometimes called international outsourcing and offshore outsourcing).

Work

The exertion of effort towards achieving a goal, completing tasks, or generating products or services, which may be compensated through wages or other forms of payment.

Jobs

Positions of employment where individuals are compensated for their labor or services by an employer.