Figure 14-1. The figure shows a utility function.
-Refer to Figure 14-1. Suppose the person to whom this utility function applies begins with $600 in wealth. Starting from there,
A)she would be willing to accept a coin-flip bet that would result in her winning $200 if the result was "heads" or losing $200 if the result was "tails."
B)the pain of losing $200 of her wealth would equal the pleasure of adding $200 to her wealth.
C)the pain of losing $200 of her wealth would exceed the pleasure of adding $200 to her wealth.
D)the pleasure of adding $200 to her wealth would exceed the pain of losing $200 of her wealth.

Question

Figure 14-1. The figure shows a utility function. 
-Refer to Figure 14-1. Suppose the person to whom this utility function applies begins with $600 in wealth. Starting from there,
A)she would be willing to accept a coin-flip bet that would result in her winning $200 if the result was "heads" or losing $200 if the result was "tails." 
B)the pain of losing $200 of her wealth would equal the pleasure of adding $200 to her wealth. 
C)the pain of losing $200 of her wealth would exceed the pleasure of adding $200 to her wealth. 
D)the pleasure of adding $200 to her wealth would exceed the pain of losing $200 of her wealth.

Quizplus · Accepted Answer

The utility function likely exhibits diminishing marginal utility of wealth, meaning the pain of losing $200 would be greater than the pleasure of gaining $200.