Question

Maria's preferences between consumption across states of the world "S" (sunshine) and "H" (hurricane) are represented by the following expected utility function: U(FSFh )=pisqrtF5) +(1-pi)sqrt(Fh) , where pi, the probability of sunshine, equals.7, and the variables Fs and Fh represent food consumption in kg in each state of the world. a. Consider situation A, where she receives 81 kg of food when sunny and 36 kg of food when there is a hurricane. What is the certainty equivalent of this risky bundle? What is her expected food consumption? b. Consider situation B, where she receives 225 kg of food when sunny and 144 kg of food when there is a hurricane. What is the certainty equivalent of this risky bundle? What is her expected food consumption? C. Consider situation C, where she receives 9 kg of food when sunny and 900 kg of food when there is a hurricane. What is the certainty equivalent of this risky bundle? What is her expected food consumption?

Answer 1