Question: 2) (marks) Suppose that you have a utility function given by the equation U = 501. Consider a lottery that provides a payoff of

2) (marks) Suppose that you have a utility function given by the equation U = 501. Consider a lottery that provides a payoff of $0 with probability 0.75 and $200 with probability 0.25. a) Sketch a graph of this utility function, letting / vary over the range 0 to 200. b) Calculate the expected value of this lottery. c) What is the expected utility of this lottery? d) What is your utility if you receive a sure payoff of $50? Is it bigger or smaller than your expected utility from the lottery? Based on your answers to these questions, are you risk averse?

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