Veronica is going to sell two vases to a dealer. She can sell each vase for $10. In order to bring her vases to the dealer, Veronica needs totake a bus. There is a 50% chance that allthe vases carried on one bus trip will be broken during the trip and a 50% chance that noneof the vases carried on one bus trip will be broken during the trip. A roundtrip bus ticket costs $1. Veronica’s net income is given by the revenues from the sale of her vases minus the cost of her bus trip(s). Requried:
a. How many trips would Veronica make if she were risk-neutral?
b. Suppose that Veronica’s utility from income is . What is the expected utility of net income when Veronica takes both vases on one bus trip? And when she makes two trips? What strategy is preferred?
c. Would Veronica’s preferred strategy change if the bus fare were increased to $3?