3. A decision maker is faced with a choice between a lottery with a 30% chance of a payoff of $30 and a70% chance of a payoff of $80, and a guaranteed payoff of $65.a. If the decision makers utility function isU = 11/2 what is the risk premium associated with thischoice?b. If the decision makers utility function is U =1+ 500, what is the risk premium associated with thischoice?

Introduction: A utility is a commodity's ability to satisfy one's desires. In economics, the utility…

3. A decision maker is faced with a choice between a lottery with a 30% chance of a payoff of $30 and a 70% chance of a payoff of $80, and a guaranteed payoff of $65. a. If the decision makers utility function is U = 1/2 what is the risk premium associated with this choice? b. If the decision makers utility function is U =1+500, what is the risk premium associated with this choice?

3. A decision maker is faced with a choice between a lottery with a 30% chance of a payoff of $30 and a 70% chance of a payoff of $80, and a guaranteed payoff of $65. a. If the decision makers utility function is U = 1/2 what is the risk premium associated with this choice? b. If the decision makers utility function is U =1+500, what is the risk premium associated with this choice?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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How do you solve this problem? (see attachment)
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