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 = 36 and W_R = 25 and the probability of drought is 0.75.Expected water consumption is: A) 33.25 units of water. B) 61 units of water. C) 30.5 units of water. D) 27 units of water.

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Quizplus · Accepted Answer

The expected water consumption is calculated by taking the weighted average of water consumption in each state (drought and rainy season) based on their probabilities. For drought, the consumption is 36 units with a probability of 0.75, and for the rainy season, the consumption is 25 units with a probability of 0.25. Thus, the expected water consumption is (0.75 * 36) + (0.25 * 25) = 27 + 6.25 = 33.25 units of water.

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