b: What is person B's expected utility for the decision to use the new product and would he choose this action if he was acting alone?

2. [20 marks] Consider the following decision problem : 0.1 High Sales H $ 90,000 0.4 Use new Product Medium Sales $ 40,000 0.5 Low Sales H $ 10,000 Use Existing Product $ 28,900 Suppose that person A has risk preferences that can be represented by the following utility function: Tx UA(X) = SQRT (x)/300 (i.e. ) where x is the monetary outcome measured in dollars 300 and person B when asked for the monetary equivalents of three gambles (i.e. Q1,Q2, &Q3), gives the following responses: (1) A 50-50 gamble giving either $100,000 or $0 is equal to $45,000 for sure. (ii) A 50-50 gamble giving either $100,000 or $45,000 is equivalent to $70,000 for sure. (iii) A 50-50 gamble giving either $45,000 or $0 is equivalent to $22,000 for sure. (a) [5 marks] Which choice would a risk neutral person make in the above problem? Show work. (b) [10 marks] What is person B's expected utility for the decision to use the new product and would he choose this action if he was acting alone? 2. [20 marks] Consider the following decision problem : 0.1 High Sales H $ 90,000 0.4 Use new Product Medium Sales $ 40,000 0.5 Low Sales H $ 10,000 Use Existing Product $ 28,900 Suppose that person A has risk preferences that can be represented by the following utility function: Tx UA(X) = SQRT (x)/300 (i.e. ) where x is the monetary outcome measured in dollars 300 and person B when asked for the monetary equivalents of three gambles (i.e. Q1,Q2, &Q3), gives the following responses: (1) A 50-50 gamble giving either $100,000 or $0 is equal to $45,000 for sure. (ii) A 50-50 gamble giving either $100,000 or $45,000 is equivalent to $70,000 for sure. (iii) A 50-50 gamble giving either $45,000 or $0 is equivalent to $22,000 for sure. (a) [5 marks] Which choice would a risk neutral person make in the above problem? Show work. (b) [10 marks] What is person B's expected utility for the decision to use the new product and would he choose this action if he was acting alone