Suppose That an Economist Has a Utility Function U =

question 9

Essay

Suppose that an economist has a utility function U = (Income)0.25. Her income is $65K a year, but there is a 10 percent chance of becoming ill and making only $57K.
(a)What is her expected utility if she does not have insurance?
(b)What is the actuarially fair insurance premium?
(c)How much is she willing to pay for insurance?

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