-Andrew Has the Utility of Wealth Curve Shown in the Above

question 17

Multiple Choice

-Andrew has the utility of wealth curve shown in the above figure. He owns an SUV worth $30,000 and that is his only wealth. There is a 10 percent chance that he will have an accident within a year. If he does have an accident, his SUV is worthless. Suppose all SUV owners are like Andrew. An insurance company agrees to pay each person who has an accident the full value of his/her SUV. The company's operating expenses are $1,500. What is the minimum insurance premium that the company is willing to accept?

• A) $1,500 per year
• B) $4,500 per year
• C) $3,000 per year
• D) $6,000 per year