An increase in Meta's wealth from $3,000 to $6,000 raises her utility from 80 units to 100 units. If she is risk averse, with a wealth of $9,000 her utility might be
A) 99 units.
B) 114 units.
C) 120 units.
D) 126 units.

Question

Quizplus · Accepted Answer

A risk-averse individual experiences diminishing marginal utility of wealth, meaning each additional dollar increases utility by a smaller amount. Since Meta's utility increased by 20 units when her wealth doubled from $3,000 to $6,000, a further increase in wealth to $9,000 would result in a smaller increase in utility, making 114 units a plausible value.

An Increase in Meta's Wealth from $3,000 to $6,000 Raises