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= $500000+0
Expected value = $500000
b) The money which we can expect to make is $500000.
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from Economics 102: MacroeconomicsChapter 11 / Lesson 4