Suppose that you are buying a car and you are interested in both price and life span. You have narrowed your choices to three alternatives: the Portalo (a relatively expensive sedan with good life span), the Norushi (known for its reliability) and the Standard (a relatively inexpensive domestic car).

	Portalo	Norushi	Standard
Price	$17,000	$10,000	$8000
Life Span (years)	12	9	6

You have the following individual utility functions for price and life span:

Life Span	Price
U L (6 years) = 0	U P (17,000) = 0
U L (9 years) = 0.75	U P (10,000) = 0.5
U L (12 years) = 1.00	U P (8,000) = 1.0

Assume an additive utility model and set K _L and K _P as weights for life span and price respectively.

With K _L = 0.45, calculate the utility for the three cars. Which would you choose?

Suppose that you are not completely comfortable with the assessment of K _L = 0.45. How large could K _L be before the decision changes and what would be the new choice? How small could K _L be before the decision changes and what would be the new choice? Specify the values of K _L for which each car is selected.

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Given data KL 045 Buying acar and you are inter... View the full answer