Figure 9-1. The figure shows a utility function.

-Refer to Figure 9-1. Suppose the person to whom this utility function applies begins with $600 in wealth. Starting from there,
A) she would be willing to accept a coin-flip bet that would result in her winning $200 if the result was "heads" or losing $200 if the result was "tails."
B) the pain of losing $200 of her wealth would equal the pleasure of adding $200 to her wealth.
C) the pain of losing $200 of her wealth would exceed the pleasure of adding $200 to her wealth.
D) the pleasure of adding $200 to her wealth would exceed the pain of losing $200 of her wealth.

Question

Figure 9-1. The figure shows a utility function.
 
-Refer to Figure 9-1. Suppose the person to whom this utility function applies begins with $600 in wealth. Starting from there,
A) she would be willing to accept a coin-flip bet that would result in her winning $200 if the result was "heads" or losing $200 if the result was "tails." 
B) the pain of losing $200 of her wealth would equal the pleasure of adding $200 to her wealth. 
C) the pain of losing $200 of her wealth would exceed the pleasure of adding $200 to her wealth. 
D) the pleasure of adding $200 to her wealth would exceed the pain of losing $200 of her wealth.

Quizplus · Accepted Answer

The utility function likely exhibits diminishing marginal utility of wealth, meaning the loss of $200 would have a greater negative impact on utility than the positive impact of gaining $200.

Figure 9-1. the Figure Shows a Utility Function