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Consider a consumer whose utility function for income is given by square root of x . This consumer is offered a choice between:

Consider a consumer whose utility function for income is given byÂ square root of x.â€‹This consumer is offered a choice between: (1) a certain outcome of obtaining $225 and (2) a risky gamble which generates either an outcome ofÂ x1=$100 with probability Pr(x1)=0.5, or an outcome ofÂ x2=$400 with probability Pr(x2)=0.5â€‹â€‹. Which of the following statements is true?Â A.Â Such a person prefers option (1) and she is risk averseÂ B.Â She is risk averse but she still prefers option (2) since the expected value is higherÂ C.Â Such a person is indifferent between both options so that makes her risk neutral.Â D.Â Such a person is indifferent between the two choices and is risk averse.Â E.Â She prefers option (2) so that makes her risk loving.

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DATE ANSWEREDJan 02, 2020

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