Amy's utility depends upon her income, w. Her utility function is √w. She receives a prize that depends on the roll of a dice. If she rolls a 3 or 4 or 6, she will receive $400. Otherwise, if she rolls a 1 or 2 or 5, she will receive $100. 4. A competitive market offers insurance at a fair premium against the risk of rolling a 1, 2 or 5. What is the utility of Amy if she buys insurance (round at the second decimal)? 5. How much money beyond the fair premium is Amy willing to pay to get rid of risk entirely?

Amy's utility depends upon her income, w. Her utility function is √w. She receives a prize that depends on the roll of a dice. If she rolls a 3 or 4 or 6, she will receive $400. Otherwise, if she rolls a 1 or 2 or 5, she will receive $100. 4. A competitive market offers insurance at a fair premium against the risk of rolling a 1, 2 or 5. What is the utility of Amy if she buys insurance (round at the second decimal)? 5. How much money beyond the fair premium is Amy willing to pay to get rid of risk entirely?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.4P

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