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I. A. Suppose that a proposed project has net benets per person of $50,000 with probability 0.5 and $50,000 with probability 0.5 and the participants

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I. A. Suppose that a proposed project has net benets per person of $50,000 with probability 0.5 and $50,000 with probability 0.5 and the participants are risk averse. 10 1. What is the expected monetary value (EMV) of the project to each person? 20 2. Explain why the EMV is not the correct measure of the value of the project. 20 B. Discuss whether, and why, the project would be worthwhile if it was an environmental program that reduced risks of property damage. 20 C. How, if at all, would your answer to part B change if the outcomes of the project are negatively correlated with the other sources of income? Why? 15 D. Suppose that the utility of $0 is 0 and the utility of $100,000 is 100. If an individual says they are indifferent between an uncertain prospect with probability of 0.2 of $0 and 0.8 of $100,000 and receiving $50,000 for certain, what is the utility of $50,000? 15 E. Suppose that someone's utility function for income is U(Y) = Y2. Are they risk averse, risk neutral, or risk loving? Explain

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