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You own a vineyard and grow grapes.Youget utility from grapes according to the utility function U (G) =G G.(The utility function = the square root

You own a vineyard and grow grapes.Youget utility from grapes according to the utility function

U (G) =G

G.(The utility function = the square root of G) The grape yield in your vineyard depends on the weather.If it is sunny, you will have 1000 units of grapes but if it is rainy your yield will only be 100 units of grapes.The probability of rain is 0.20.

a, (4 points) What is your expected grape yield?

b. (4 points) What is your expected utility?

c. (4 points) Calculate your certainty equivalent amount of grapes.

d. (2 points) Calculate your risk premium.

e. (4 points) Write the equation for your constant expected grape yield.

f. (12 points) Graph your analysis using an indifference curve, the constant expected consumption line and the guaranteed consumption line.

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