Only typed answer The shape of your utility function implies that you are athe difference in utility between A and C is00individual, and, therefore, you00the difference between C and B.Which of the following sentences most appropriately describe why the pain of losing $1,000 is greater than the joy of winning $1,000 for individualswho are risk averse? Check all that apply.accept the wager becauseThe more wealth that risk-averse people have, the less satisfaction they receive from an additional dollar.Risk-averse people are relatively wealthy and simply do not need the additional money.The more wealth that risk-averse people have, the more satisfaction they receive from an additional dollar.The utility function of a risk-averse person exhibits the law of diminishing marginal utility. 5. Understanding risk aversionSuppose your classmate Edison offers you a wager: He will choose a playing card at random from a deck and pay you $1,000 if it is red, but you haveto pay him $1,000 if it is black. Assume your wealth is currently $3,000. The graph shown below plots your utility as a function of wealth. Use thegraph to answer the questions that follow.UTILITY (Units of utility)10090807060502010001'*2B3WEALTH (Thousands of dollars)45?

Risk aversion: Risk aversion refers to the characteristic of an individual that refers to his…

to pay him $1,000 if it is black. Assume your wealth is currently $3,000. The graph shown below plots your utility as a function of wealth. Use the graph to answer the questions that follow. UTILITY (Units of utility) 100 90 80 70 60 50 40 30 20 10 0 0 1 2 B 3 WEALTH (Thousands of dollars) 4 5 ?

to pay him $1,000 if it is black. Assume your wealth is currently $3,000. The graph shown below plots your utility as a function of wealth. Use the graph to answer the questions that follow. UTILITY (Units of utility) 100 90 80 70 60 50 40 30 20 10 0 0 1 2 B 3 WEALTH (Thousands of dollars) 4 5 ?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Only typed answer

The shape of your utility function implies that you are a
the difference in utility between A and C is
00
individual, and, therefore, you
00
the difference between C and B.
Which of the following sentences most appropriately describe why the pain of losing $1,000 is greater than the joy of winning $1,000 for individuals
who are risk averse? Check all that apply.
accept the wager because
The more wealth that risk-averse people have, the less satisfaction they receive from an additional dollar.
Risk-averse people are relatively wealthy and simply do not need the additional money.
The more wealth that risk-averse people have, the more satisfaction they receive from an additional dollar.
The utility function of a risk-averse person exhibits the law of diminishing marginal utility.

5. Understanding risk aversion
Suppose your classmate Edison offers you a wager: He will choose a playing card at random from a deck and pay you $1,000 if it is red, but you have
to pay him $1,000 if it is black. Assume your wealth is currently $3,000. The graph shown below plots your utility as a function of wealth. Use the
graph to answer the questions that follow.
UTILITY (Units of utility)
100
90
80
70
60
50
20
10
0
0
1
'*
2
B
3
WEALTH (Thousands of dollars)
4
5
?

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Step 1: Risk aversion:

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Step 2: Shape of the utility function:

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Step 3: Expected utility:

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Step 4: Net utility gain:

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