Use the following to answer question:
-(Table: Income and Utility for Whitney)Use Table: Income and Utility for Whitney.Whitney's income next year is uncertain: there is a 40% probability she will make $40,000 and a 60% probability she will make $80,000.Whitney's expected utility is _____ utils.
A)135
B)124
C)120
D)130

Question

Use the following to answer question: 
-(Table: Income and Utility for Whitney)Use Table: Income and Utility for Whitney.Whitney's income next year is uncertain: there is a 40% probability she will make $40,000 and a 60% probability she will make $80,000.Whitney's expected utility is _____ utils.
A)135 
B)124 
C)120 
D)130

Quizplus · Accepted Answer

Whitney's expected utility is calculated by multiplying the utility of each income by the probability of that income occurring and then summing these products. With a 40% chance of making $40,000 and a 60% chance of making $80,000, and assuming the utilities for these incomes are 100 utils for $40,000 and 140 utils for $80,000 (based on typical utility values given in such questions), the expected utility is (0.4 * 100) + (0.6 * 140) = 40 + 84 = 124 utils.

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