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Maximizing Utility

In the past few years, the traffic problems in Lynn McKell's hometown have gotten worse. Now, Broad Street is congested about half the time. The normal travel time to work for Lynn is only l5 minutes when Broad Street is used and there is no congestion. With congestion, however, it takes Lynn 40 minutes to get to work. I f Lynn decides to take the expressway, it will take 30 minutes regardless of the traffic conditions. Lynn's utility for travel time is: U(15 minutes) = 0.9, U(30 minutes) = 0.7, and U(40 minutes) = 0.2.

(a) Which route will minimize Lynn's expected travel time?
(b) Which route will maximize Lynn's utility?
(c) When it comes to travel time, is Lynn a risk seeker or a risk avoider?


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Solution is attached as MS word document also.


(a)Which route will minimize Lynn's expected travel time?

Expected time if he takes Broad street=time required if it is congested*probability of congestion+ time required if it is not congested*probability if it is not congested=0.5*40+0.5*15=27.5 minutes
Expected time if ...

Solution Summary

Solution describes the steps to find out expected travel time. It also determines the path that maximizes Lynn's utility.