Q.No.8: Derive your own utility function for profit for the range of profits shown in the follow- ing table: Profit outc

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Q No 8 Derive Your Own Utility Function For Profit For The Range Of Profits Shown In The Follow Ing Table Profit Outc 1 (118.76 KiB) Viewed 52 times

Q.No.8: Derive your own utility function for profit for the range of profits shown in the follow- ing table: Profit outcome Utility index Marginal utility of profit $1,000 2,000 07 0.0007 AUT XT 3,000 0.9 3,200 0.93 ·000 2 0.00015 0.00093 4,000 1.0 a. Find the probability p that would make you indifferent between (1) accepting a risky project with probability p of making $4,000 and probability 1 - p of making a profit of $1,000 or (2) making a profit of $2,000 with certainty. Write this probability in the correct blank in the table. b. Repeat part a for $3,000 and $3,200. c. Compute the marginal utility of profit. (Hint: MU Autility index/Aprofit, and the denominator, Aprofit, is not constant in this table.) d. Does your utility index indicate that you have a risk-averse, risk-neutral, or risk loving attitude toward risk? Explain.