Andrés makes brownies on Wednesday that he sells at the farmers market on Thursday. Each brownie costs $1 to make, and he can sell them for $2. Andrés believes that the number of brownies he can sell...

Andrés makes brownies on Wednesday that he sells at the farmers market on Thursday. Each brownie costs $1 to make, and he can sell them for $2. Andrés believes that the number of brownies he can sell on Thursday is 150 with probability .5 and 50 with probability .5. (a) How many brownies does Andrés make to maximize expected profits? What are his maximal expected profits? Suppose Andrés is indifferent between having $75 and having an investment that pays $150 with probability .5 and $50 with probability .5, and that he has constant risk tolerance. (b) How many brownies does Andrés make to maximize the certainty equivalent of his profits? What is the value of this maximal certainty equivalent?