Suppose that Natasha's utility function is given by u(l) = I^0.5, where I represents annual income in thousands of dollars.
1. Is Natasha risk loving, risk neutral, or risk averse? Explain,
2. Suppose that Natasha is currently earning an income of $40,000 (I = 40) and can earn that income next year with certainty. She is offered a chance to take a new job that offers a 0.6 probability of earning $44,000 and a 0.4 probability of earning $33,000. Should she take the new job?
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Suppose that Natasha's utility function is given by u(l) = I^0.5, where I represents annual income i...
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