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(Table: Utility and Income Levels for Tamara) Use Table: Utility

Question 157

Multiple Choice

(Table: Utility and Income Levels for Tamara) Use Table: Utility and Income Levels for Tamara. The table shows the utility Tamara receives at various income levels, but she does not know what her income will be next year. There is a 40% chance her income will be $20,000, a 40% chance her income will be $30,000, and a 20% chance her income will be $40,000. We know that Tamara is risk averse because:  Table: Utility and Income Levels for Tamara  Income Level  Utility Level (utils)  $20,0002,50025,0003,00026,5163,14428,0003,27029,0003,35030,0003,42031,0003,48035,0003,68040,0003,880\text { Table: Utility and Income Levels for Tamara } \\\begin{array} { | l | l | } \hline \text { Income Level } & \text { Utility Level (utils) } \\\hline \$ 20,000 & 2,500 \\\hline 25,000 & 3,000 \\\hline 26,516 & 3,144 \\\hline 28,000 & 3,270 \\\hline 29,000 & 3,350 \\\hline 30,000 & 3,420 \\\hline 31,000 & 3,480 \\\hline 35,000 & 3,680 \\\hline 40,000 & 3,880 \\\hline\end{array}


A) she would prefer $40,000, but there is a risk she will make only $20,000.
B) her expected income is less than what she may actually earn.
C) her expected income is more than what she may actually earn.
D) she experiences diminishing marginal utility of income.

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