Question

pleade help the answer risk averse is wrong need hw help

Incorrect Question 8 0/0.27 pts Amos Long's utility of income function is given as:U(I) = 11.5, where I represents income. From this you would say that he is risk averse. risk loving. risk neutral none of the above The easiest way is using some simple numbers as an example. Another small trick is checking the power. If the power is bigger than 1, it is risking loving. Please check the examples on PPT for further information.

Answer 1

Ans. Option b

Utility function, U = I^1.5

=> Marginal utility of income, MU = dU/dI = 1.5*I^0.5

And slope of MU, SMU = dMU/dI = 0.75/I^0.5

We can see that MU is an increasing function of income (I), but SMU shows that with increase in income MU increases at an increasing rate i.e. with each additional dollar of income, the utility rises making the utility function convex shaped. This is a characteristic of a risk loving individual as opposed to concave utility function of a risk averae individual.

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