Marge is contemplating the purchase of a high stakes Springfield Lottery ticket. The ticket would cost her $5,000. There’s a 50 percent chance she’ll win $10,000 (and a 50 percent chance she’ll “win” $0).

1. What is the expected value of the lottery?
2. Graph Marge’s Bernoulli utility function u(c) = C^1/3 . Is she risk averse? What is the expected utility of the lottery?
3. Find the certainty equivalent.
4. Should Marge purchase the ticket? What if her Bernoulli utility were u(c) = c? What if it were u(c) = C³?