Assume that a consumers utility can be described by the following utility function: where is a

Assume that a consumer’s utility can be described by the following utility function:

where α is a constant and C is the level of consumption. Currently the consumer’s consumption is uncertain, varying between zero and one with equal probability. In other words, the consumer’s current level of consumption can be described by a standard uniform distribution.How much would you have to offer the consumer, with certainty, to leave the consumer just as well off if α is equal to 5?

Transcribed Image Text:

U = 1-e-ac