Question

I really confused ahout this question.Please answer this question as specifc as possible.Thanks!

3. A consumer has a utility function U = INCOME. For example, if the person has an income of 9, the utility is 3. a) Calculate the consumer's marginal utility of income i) going from an income of 16 to an income of 25 and 1) going from an income of 49 to an income of 64 Explain whether these numbers show the consumer is risk-averse, risk neutral, or risk loving. (1 point) b) Calculate the expected income and expected utility in each of the following situations: i) The consumer has a 5% chance of earning $225 and a 95% chance of earning $81 ii) The consumer has a 49% chance of earning $144 and a 51% chance of earning $36

Answer 1

chance of earny Bil as if st. chancur earning $225 and a o Expected income = P, (Y) + P₂ (Y) Ely) = 0.05 (2258 + 0.95 (816) 11.25 + 76.95 = 88.2 $ E(U- 0.05 (22555+ 0.95(815) 0.05 (ASE) + 0.95698) {(u)= 0.75 + 8.55= 9.3 ei consumer has SH chance ugy. Chance of earning $(144) & 9 of earning $36. 0.49 ($144) & 0.5l (836) 90.567 18:36 -88.92 E(W): 05 E(U) - 0.49 Claus + 0.51 ($ 360° 0.49(12) + 0.5l (6) 5.88 + 8.06 = 8.94 Situation a is more riske because here expected Income & expected utility both are us

25 as comare to ii). 0 in situation brii) expected Income of expected utility both are more as compare to bli). if lo in situation bio $88.92-85$ = $3.92 is Benium.

23 consumer Utility = u= if Income a 3 = income Vincome then ohuty 3 J9 u tos income 16 to 25 Uz Jio u= 4 U= 25 u= 5 v Income going from U = Jug U = √64 49 to 64 7 to 8 so constant ,مقام Constant. MUM = Person is Risk Netunel -MUM on y Risk Metural enume