Suppose that an individual's utility of money function is U = 25M. This individual can best be described as risk:
A) Indifferent.
B) Averse.
C) Neutral.
D) Loving.
E) None of the above.

Question

Quizplus · Accepted Answer

A linear utility function, such as U = 25M, indicates that the individual's utility increases directly with money, without any diminishing or increasing rate of utility for each additional unit of money. This characteristic is indicative of risk neutrality, meaning the individual is indifferent to risk and values each monetary unit equally, regardless of the total amount of money they have.

Suppose That an Individual's Utility of Money Function Is U