Answer:
He will sell at 5
Step-by-step explanation:
Compute expected utility with the ticket:
1) EU = (0.5 × 30)+ (0.5 × 20) = 25 utils
We have to find the wealth level that provides the same utility as we have with the ticket:
Since U(x) = x
x = 25
He will sell at = 5
2) EU = 0.5 × [tex](30)^{2}[/tex] + 0.5 × [tex](20)^{2}[/tex]
= 650 utils
since U(x) = [tex]x^{2}[/tex]
or x = [tex]\sqrt{U}[/tex]
x = [tex]\sqrt{650}[/tex]
x = 25.495
