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Question: An individual has the following utility function: u(w) = w.5 where w = wealth.

a. Using expected utility, order the following prospects in terms of preference, from the most to the least preferred:

- P1(.8, 1,000, 600)

- P2(.7, 1,200, 600)

- P3(.5, 2,000, 300)

b. What is the certainty equivalent for prospect P2?

c. Without doing any calculations, would the certainty equivalent for prospect P1 be larger or smaller? Why?

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