At which the individual would be willing to sell the ticket

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Reference no: EM13238629

A person has an expected utility function of the form U(w)=w^1/2.He has an initial wealth of $25.He also has a lottery ticket that will be worth $75 with probability 1/2 and will be worth $0 with probability 1/2.

a) What is the person's expected utility?

b) What is the lowest price p at which the individual would be willing to sell (or part with) the ticket?

c) Suppose the individual's initial wealth is$50.Repeat parts (a) and (b).

d) compare the value of p between (b) and (c)and explain the difference in economics terms.

Reference no: EM13238629

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