Question: Refer to question 10. Suppose that the consultants fee is $5,000 and the utility function for the owner of Morley Properties can be approximated by

Refer to question 10. Suppose that the consultant’s fee is $5,000 and the utility function for the owner of Morley Properties can be approximated by the exponential utility function:

U(x) = 1 – e-x/R

Where the risk tolerance value R = 100 (in $1000s).

a. What expected level of utility is realized if Morley Properties hires the consultant?

b. What expected level of utility is realized if Morley Properties does not hire the consultant?

c. Based on this analysis, should Morley Properties hire the consultant?

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