23. Captain Kidd has a map that has a 20% probability of leading him to a treasure worth 400,000 guineas. Independent of the fact of having a map, Capitan Kidd already has his own income equal to 90,000 guineas. Another pirate wants to buy the map from the Capitan Kidd (after selling the map Capitan Kidd has no chance to find a treasure). What is the minimum price for a map which the Captain Kidd will accept if Capitan Kidd has von Neuman- Morgenstern utility function is U(w) = w0.5, where w is his income level? a) 54,400 b) 32,500 c) 45,000 d) 90,000 e) There is no correct answer

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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23. Captain Kidd has a map that has a 20% probability of leading him to a treasure worth
400,000 guineas. Independent of the fact of having a map, Capitan Kidd already has his own
income equal to 90,000 guineas. Another pirate wants to buy the map from the Capitan Kidd
(after selling the map Capitan Kidd has no chance to find a treasure). What is the minimum
price for a map which the Captain Kidd will accept if Capitan Kidd has von Neuman-
Morgenstern utility function is U(w) = w0.5, where w is his income level?
a) 54,400
b) 32,500
c) 45,000
d) 90,000
e) There is no correct answer
Transcribed Image Text:23. Captain Kidd has a map that has a 20% probability of leading him to a treasure worth 400,000 guineas. Independent of the fact of having a map, Capitan Kidd already has his own income equal to 90,000 guineas. Another pirate wants to buy the map from the Capitan Kidd (after selling the map Capitan Kidd has no chance to find a treasure). What is the minimum price for a map which the Captain Kidd will accept if Capitan Kidd has von Neuman- Morgenstern utility function is U(w) = w0.5, where w is his income level? a) 54,400 b) 32,500 c) 45,000 d) 90,000 e) There is no correct answer
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