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-(Table: Income and Utility for Tyler)Use Table: Income and Utility for Tyler.The table shows the utility Tyler receives at various income levels,but she does not know what her income will be next year.There is a 40% chance her income will be $20,000,a 40% chance her income will be $30,000,and a 20% chance her income will be $40,000.We know that Tyler is risk-averse because:
A)she would prefer $40,000,but there is a risk she will make only $20,000.
B)her expected income is less than what she may actually earn.
C)her expected income is more than what she may actually earn.
D)she is subject to diminishing marginal utility from income.

Question

Use the following to answer question: 
-(Table: Income and Utility for Tyler)Use Table: Income and Utility for Tyler.The table shows the utility Tyler receives at various income levels,but she does not know what her income will be next year.There is a 40% chance her income will be $20,000,a 40% chance her income will be $30,000,and a 20% chance her income will be $40,000.We know that Tyler is risk-averse because:
A)she would prefer $40,000,but there is a risk she will make only $20,000. 
B)her expected income is less than what she may actually earn. 
C)her expected income is more than what she may actually earn. 
D)she is subject to diminishing marginal utility from income.

Quizplus · Accepted Answer

The fact that Tyler is risk-averse indicates that she is subject to diminishing marginal utility from income. This means that as her income increases, the additional utility she obtains from each additional dollar of income decreases. Therefore, she would prefer a more certain income rather than a high but uncertain income.

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