Question

When the utility function for a risk-neutral decision maker is graphed (with monetary value on the horizontal axis and utility on the vertical axis), the function appears as a(n) ________.(A) convex curve.(B) concave curve.(C) 'S' curve.(D) straight line.

Answer 1

Answer:

The correct answer is letter "D": straight line.

Explanation:

Utility represents the satisfaction a person receives from the use of a good or service. In case there is a risk-neutral decision-maker, that individual is unlikely to vary the value he or she provides to the use of products to remain in a comfort zone. However, the utility could vary according to satisfaction the good or service provides in different situations.

Thus, if plotted in a graph, the value representing the horizontal axis and the utility the vertical axis, there will be a straight line departing from the horizontal axis parallel to the vertical axis.