# You are making an app with a 5% chance of making a ton-load of money, and 95% chance of earning...

You are making an app with a 5% chance of making a ton-load of money, and 95% chance of earning nothing. Your utility is the square root of income (Utility = Y1/2); you will have $10,000,0001/2 happiness if your app succeeds but 01/2 happiness if it fails. a)) What is the expected value of your app? How much money can you expect to make? What is your utility at that income ? ## Marginal propensity to save: The marginal propensity to save is the ratio of change in saving to change in disposable income. There exist a positive relationship between saving and income such that the saving curve is upward sloping. ## Answer and Explanation: a) The expected value of app Expected value= 5%*10000000+95%*0 Expected value=0.05*10000000+0.95*0 Expected value=$500000+0

Expected value = $500000 b) The money which we can expect to make is$500000.

c) Utility

Utility=squareroot($500000) Utility=$707.106781 