Mary Runs Her Own Small Business, and Has a Utility

question 19

Essay

Mary runs her own small business, and has a utility function for assets of:
U(A) = 22A - .07A²‚ for all 0≤ A ≤ 100, where A denotes total assets in thousands of dollars.
(a) Describe Mary's attitude toward risk.
(b) Assume that Mary's current asset holding are $20,000. Should she accept a business opportunity that has a probability of 0.55 leading to a net profit of $15,000 and a probability of 0.45 leading to a net loss of $15,000?
(c) Assume that Mary's assets are $85,000 instead. Should she now accept the same offer?
(d) Comment on the results of the previous two questions.

---

Definitions:

RAID 0

A disk storage configuration that stripes data across multiple disks for improved performance but does not provide redundancy.

Performance

The efficiency and speed with which a computer or software functions, typically measured in terms of processing speed and resource consumption.

Connector

A device used to join electrical terminations and create an electrical circuit; connectors come in various sizes and shapes for different purposes.