Use the following to answer questions:
-(Table: Income and Utility for Tyler) The table Income and Utility for Tyler shows the utility Tyler receives at various income levels, but she does not know what her income will be next year. There is a 40% chance her income will be $20,000, a 40% chance her income will be $30,000, and a 20% chance her income will be $40,000. What level of certain income matches her expected utility, given the uncertainty?
A) $28,000
B) $25,000
C) $26,516
D) $29,000

Question

Use the following to answer questions: 
-(Table: Income and Utility for Tyler) The table Income and Utility for Tyler shows the utility Tyler receives at various income levels, but she does not know what her income will be next year. There is a 40% chance her income will be $20,000, a 40% chance her income will be $30,000, and a 20% chance her income will be $40,000. What level of certain income matches her expected utility, given the uncertainty?
A) $28,000 
B) $25,000 
C) $26,516 
D) $29,000

Quizplus · Accepted Answer

To find the level of certain income that matches Tyler's expected utility, calculate the expected utility using the probabilities and utilities at each income level. Then, find the income level that provides the same utility. The calculations show that $26,516 matches the expected utility.

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