2. Alice maximizes expected utility with an index u(x) √x where x is the total annual income. Her annual wage is $90000 and she gets an extra bonus of $70000 with probability 0.8. Alice's cash equivalent of this gamble is (A) 144400; (B) 160000; (C) 125000; (D) 140820. 3. Alice's risk premium for this gamble is (A) 0; (B) 2500; (C) 1600; (D) 5600. =

2. Alice maximizes expected utility with an index u(x) √x where x is the total annual income. Her annual wage is $90000 and she gets an extra bonus of $70000 with probability 0.8. Alice's cash equivalent of this gamble is (A) 144400; (B) 160000; (C) 125000; (D) 140820. 3. Alice's risk premium for this gamble is (A) 0; (B) 2500; (C) 1600; (D) 5600. =

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter17: Making Decisions With Uncertainty

Section: Chapter Questions

Problem 17.5IP

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