Maria owns a saltwater boat worth $1,150,000 and Maria has a utility function with u(x) = x0.5. She estimates that there is a 8% chance the boat will be destroyed by a hurricane and worth zero. Assume that an insurance company offers Maria a fair price for full coverage against losses. In this case, if Maria declines insurance, her expected utility will be and if she accepts, it will be O 974; 1038 974; 1029 987; 1038 987; 1029

Maria owns a saltwater boat worth $1,150,000 and Maria has a utility function with u(x) = x0.5. She estimates that there is a 8% chance the boat will be destroyed by a hurricane and worth zero. Assume that an insurance company offers Maria a fair price for full coverage against losses. In this case, if Maria declines insurance, her expected utility will be and if she accepts, it will be O 974; 1038 974; 1029 987; 1038 987; 1029

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.5P

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