An increase in Todd's wealth from $2 million to $4 million raises his utility from 400 units to 500 units. If he has a utility of wealth curve with the typical shape showing risk aversion, then with a wealth of $6 million his utility might be
A) 500 units.
B) 570 units.
C) 600 units.
D) 620 units.

Question

Quizplus · Accepted Answer

For a risk-averse individual, the utility of wealth curve is concave, meaning that as wealth increases, the additional utility gained from each additional dollar decreases. Therefore, the increase in utility from $4 million to $6 million will be less than the increase from $2 million to $4 million, making 570 units a plausible value.

An Increase in Todd's Wealth from $2 Million to $4