(Figure: Utility Function) Use the utility function graph to answer the question.
Olga has income of $30,000. She has an opportunity that has a 50% chance of increasing her income by $20,000 and a 50% chance of decreasing her income by $10,000. Which of the following is true regarding this opportunity and her utility?

Question

Quizplus · Accepted Answer

According to the utility function graph, the utility curve is concave. This means that the marginal utility of income decreases as income increases. Therefore, the potential gain in utility from increasing her income by $20,000 is less than the potential loss in utility from decreasing her income by $10,000. Thus, the potential loss in utility is less than the potential gain in utility, making this opportunity a good choice for Olga.

(Figure: Utility Function) Use the Utility Function Graph to Answer