(Table: Income and Utility for Whitney) Look at the 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:
A)135 utils.
B)124 utils.
C)120 utils.
D)130 utils.

Question

Quizplus · Accepted Answer

To calculate Whitney's expected utility, we need to multiply each income level by its respective probability and then calculate the utility associated with that income level.

Expected Utility = (0.4 x Utility at $40,000 income) + (0.6 x Utility at $80,000 income)

From the table, we can see that the utility associated with $40,000 income is 100 utils and the utility associated with $80,000 income is 140 utils.

Expected Utility = (0.4 x 100) + (0.6 x 140) = 40 + 84 = 124 utils

Therefore, Whitney's expected utility is 124 utils.

As there is only one question and no specific decision or options provided, there is no "best choice" to answer this question.

(Table: Income and Utility for Whitney) Look at the Table