-Andrew has the utility of wealth curve shown in the above figure. He owns an SUV worth $30,000, and that is his only wealth. There is a 10 percent chance that he will have an accident within a year. If he does have an accident, his SUV is worthless. What is Andrew's expected wealth?
A) $30,000
B) $27,000
C) $20,000
D) zero

Question

-Andrew has the utility of wealth curve shown in the above figure. He owns an SUV worth $30,000, and that is his only wealth. There is a 10 percent chance that he will have an accident within a year. If he does have an accident, his SUV is worthless. What is Andrew's expected wealth?
A) $30,000 
B) $27,000 
C) $20,000 
D) zero

Quizplus · Accepted Answer

Andrew's expected wealth is calculated by considering the probability of each outcome. With a 10% chance of an accident, his SUV becomes worthless, and with a 90% chance, it retains its value. Thus, expected wealth = 0.1 * $0 + 0.9 * $30,000 = $27,000.

-Andrew Has the Utility of Wealth Curve Shown in the Above