Assume Brandon's benefit function for water is S(W)= √W and he consumes water both in droughts,W_D,or in the rainy season,W_R.Assume his current consumption bundle is W_D = 400 and W_R = 100 and the probability of drought is 0.75.Expected water consumption is: A) 500. B) 250. C) 325. D) 175.

Question

Quizplus · Accepted Answer

To calculate the expected water consumption, we need to first calculate the expected consumption in each season:
Expected consumption in droughts: S(400) = √400 = 20
Expected consumption in rainy season: S(100) = √100 = 10

Now we can calculate the overall expected consumption:
(0.75)(20) + (0.25)(10) = 15 + 2.5 = 17.5

Therefore, the best choice for Brandon is to consume 17.5 units of water. However, since he cannot consume a fractional amount of water, he should choose to consume either 17 or 18 units of water. Since his current consumption bundle already includes 20 units of water in droughts, he should reduce his consumption in droughts to WS1U1B1DS0U0B0 = 289, which gives a total consumption of 17 units.

Assume Brandon's Benefit Function for Water Is S(W)= √W and He