4. Amy's utility level (U) depends on the amount of wealth (W) she possesses and it can be represented by U = the wealth drops to $4,840,000. 3Y0.5. At good state, Amy's wealth is $6,250,000 while at bad state, (a) What is the difference in Amy's utility level if she goes from a good state to a bad state? (b) For a probability of illness of 15%, would Amy buy health insurance to protect herself against any loss of wealth? Explain. (c) How much would Amy be charged for a health insurance (i.e. What is the premium)? pure (d) Compute the risk premium for the case of Amy.

4. Amy's utility level (U) depends on the amount of wealth (W) she possesses and it can be represented by U = the wealth drops to $4,840,000. 3Y0.5. At good state, Amy's wealth is $6,250,000 while at bad state, (a) What is the difference in Amy's utility level if she goes from a good state to a bad state? (b) For a probability of illness of 15%, would Amy buy health insurance to protect herself against any loss of wealth? Explain. (c) How much would Amy be charged for a health insurance (i.e. What is the premium)? pure (d) Compute the risk premium for the case of Amy.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter4: Utility Maximization And Choice

Section: Chapter Questions

Problem 4.12P

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