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Bubba's utility (U) preferences with respect to wealth (w) can be described by the utility function U=W0.5. Assume that Bubba's current wealth level equals $256. Also assume that Bubba faces a 20 percent chance of incurring a fire in the next year that would totally destroy his home (valued at $155) and an 80 percent chance that no fire loss will occur.
Calculate the level of additional satisfaction that Bubba gets when his wealth increases from $1 to $2.
Calculate the level of additional satisfaction that Bubba gets when his wealth increases from $256 to $257.
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