Scenario: Frank has two options: hot dogs and ice cream. Frank derives a current utility of 8 utils from hot dogs and a current utility of 10 utils from ice cream. He also estimates the delayed costs in terms of health effects from both options. The delayed costs from hot dogs are estimated at 14 utils, and the delayed costs from ice cream are estimated at 12 utils.
-Refer to the scenario above.If Frank discounts delayed utilities with a weight of $ \frac{8}{10} $ ,then which of the following statements is true?

Question

Quizplus · Accepted Answer

To determine Frank's decision, we calculate the net utility for each option by subtracting the discounted delayed costs from the current utility. The discount factor is $ \frac{8}{10} $ or 0.8.For hot dogs:Net utility = Current utility - (Delayed costs $\times$ Discount factor)= 8 - (14 $\times$ 0.8)= 8 - 11.2= -3.2For ice cream:Net utility = Current utility - (Delayed costs $\times$ Discount factor)= 10 - (12 $\times$ 0.8)= 10 - 9.6= 0.4Since the net utility for hot dogs is negative and for ice cream is positive, Frank will consume ice cream but will avoid consuming hot dogs.

Scenario: Frank Has Two Options: Hot Dogs and Ice Cream 810 \frac{8}{10} 108​

Scenario: Frank Has Two Options: Hot Dogs and Ice Cream $\frac{8}{10}$