(Figure: Utility and Income) Suppose that Sara has an income of $80,000 but if her business burns down, her income drops to $20,000.
a. What is Sara's expected income?
b. What is the probability that Sara's business will burn down?
c. What is Sara's expected utility?
d. What is Sara's utility evaluated at her expected income? (You will not be able to give a specific value, so provide a range of values for your answer.)
e. What is Sara's certainty equivalent?

Question

(Figure: Utility and Income) Suppose that Sara has an income of $80,000 but if her business burns down, her income drops to $20,000.  
a. What is Sara's expected income?
b. What is the probability that Sara's business will burn down?
c. What is Sara's expected utility?
d. What is Sara's utility evaluated at her expected income? (You will not be able to give a specific value, so provide a range of values for your answer.)
e. What is Sara's certainty equivalent?

Quizplus · Accepted Answer

The Answer of (Figure: Utility and Income) Suppose that Sara has an income of $80,000 but if her business burns down, her income drops to $20,000.  
a. What is Sara's expected income?
b. What is the probability that Sara's business will burn down?
c. What is Sara's expected utility?
d. What is Sara's utility evaluated at her expected income? (You will not be able to give a specific value, so provide a range of values for your answer.)
e. What is Sara's certainty equivalent?

(Figure: Utility and Income) Suppose That Sara Has an Income