Bailey's preferences over lotteries satisfies the expected utility theory. Her utility uL level from a certain level of wealth of x dollars is given by uL(x) = x. She has $40000 in wealth in the bank (assume to be risk-free) and she owns a share of a winery that she believes will pay $6500 with probability 0.5 and pay zero with probability 0.5.

(a) What is the minimum price Bailey would require in exchange for her share of the winery?

Kelseys preferences over lotteries satisfies the expected utility theory. Her utility uP level from a certain level of wealth of x dollars is given by uP (x) = e x . She has $F in wealth in the bank and does not own any other assets. Suppose Kelsey shares Baileys beliefs about the potential payouts and probabilities of Baileys share in the winery.

(b) What is the maximum price Kelsey would be willing to pay for Baileys share of the winery? You can assume F = 22300.

(c) Can Bailey and Kelsey find a mutually agreeable trading price for the share in the winery? Explain