5. Understanding risk aversionSuppose your friend Juanita offers you the following bet: She will flip a coin and pay you $1,000 if it lands heads up and collect $1,000 from you if itlands tails up. Currently, your level of wealth is $3,000. The graph shows your utility function from wealth. Use the graph to answer the followingquestions.UTILITY (Units of utility)10090807060504030201000A+CBWEALTH (Thousands of dollars) The shape of your utility function implies that you are athe difference in utility between A and C isindividual, and, therefore, youthe difference between C and B.accept the wager becauseWhich of the following best explain why the pain of losing $1,000 exceeds the pleasure of winning $1,000 for risk-averse people? Check all that apply.The more wealth that risk-averse people have, the more satisfaction they receive from an additional dollar.Risk-averse people are relatively wealthy and simply do not need the additional money.The utility function of a risk-averse person exhibits the law of diminishing marginal utility.The more wealth that risk-averse people have, the less satisfaction they receive from an additional dollar.

The utility capability of a gamble unwilling individual displays the law of decreasing minor…

5. Understanding risk aversion Suppose your friend Juanita offers you the following bet: She will flip a coin and pay you $1,000 if it lands heads up and collect $1,000 from you if it lands tails up. Currently, your level of wealth is $3,000. The graph shows your utility function from wealth. Use the graph to answer the following questions. UTILITY (Units of utility) 100 90 80 70 60 50 40 30 20 10 0 0 A 2 WEALTH (Thousands of dollars)

5. Understanding risk aversion Suppose your friend Juanita offers you the following bet: She will flip a coin and pay you $1,000 if it lands heads up and collect $1,000 from you if it lands tails up. Currently, your level of wealth is $3,000. The graph shows your utility function from wealth. Use the graph to answer the following questions. UTILITY (Units of utility) 100 90 80 70 60 50 40 30 20 10 0 0 A 2 WEALTH (Thousands of dollars)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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