Suppose that an individual has a utility function of the form U = Y where U
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Question:
Suppose that an individual has a utility function of the form U = Y½ where U is utility and Y is income.
a) Calculate the utility level for Y values of $10,000, $40,000, $90,000, $160,000, and $250,000 and then plot the individual’s total utility function.
b) This individual is currently earning $90,000 but has a 50-50 chance of earning either $40,000 or $160,000 in a new job.
i) Calculate the expected income and utility from the new job.
ii) Calculate and illustrate the risk premium .
iii) Calculate the standard deviation.
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