Should she send the two articles together in same package

Reference no: EM13198442

Lori, who is risk averse, has two pieces of jewelry, each worth $400. She wants to send them to her sister in Mexico. She is concerned about the safety of shipping them. She believes that the probability that a shipped package will not arrive is q. The price of a package is $10, and Lori's utility function is U(V,C)= sqrt(V)-C,where C is the cost of shipping and V is the total value of the jewelry. Should she send the two articles together in the same package or in two different (independent) packages? Provide your answer for the case where (i) q = 0.1 and (ii) q = 0.2.

Reference no: EM13198442

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