5. Suppose the manager of a firm has a utility function for profit of U( ) 20 ln( ), where is the dollar amount of profit. The manager is considering a risky project with the following profit payoffs and probabilities:

Profit Marginal Probability outcome utility of profit 0.05 $1,000 —

0.15 2,000 0.30 3,000 0.50 4,000

a. Calculate the expected profit.

b. Calculate the expected utility of profit.

c. Fill in the blanks in the table showing the marginal utility of an additional $1,000 of profit.

d. The manager is risk because the marginal utility of profit is .