Please answer both parts I do not understand. Thank you :) Part A: Suppose that there is a 20% chance Malik is injured and earns $100,000, and an 80% chance he stays healthy and will earn $500,000. Suppose further that his utility function is the following (utility = square root of income) Malik's expected income is _____. $550,000 $365,000 $400,000 $420,000 $500,000
Please answer both parts I do not understand. Thank you :)
Part A:
Suppose that there is a 20% chance Malik is injured and earns $100,000, and an 80% chance he stays healthy and will earn $500,000. Suppose further that his utility function is the following (utility = square root of income)
Malik's expected income is _____.
$550,000
$365,000
$400,000
$420,000
$500,000
Part B:
Suppose that there is a 20% chance Malik is injured and earns $100,000, and an 80% chance he stays healthy and will earn $500,000. Suppose further that his utility function is the following (utility = square root of income)
Malik's utility from his expected income is ____. Malik's expected utility of income is _____.
628.9; 648.1
604.2; 562.1
648.1; 628.9
562.1; 604.2
Expected income is a measure of the average amount of income that a person or a business can expect to receive over a specified time period, based on the probabilities of each possible outcome. It is calculated by multiplying each possible outcome by its probability and then summing the results.
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