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Cameron is currently unemployed and without health insurance coverage. He derives utility (U) from his interest income on his savings (Y) according to the following function: U(Y) = 10(Y^[1/2]) Cameron presently makes about $10,000 of interest income per year. He realizes that there is about a 10 percent probability that he may suffer a stroke. The cost of treatment will be about $3,600 if a stroke occurs. A. Calculate Cameron’s expected utility level without any health insurance coverage. Hint: U(10,000)=1,000 and U(6,400)=800. B. Suppose Cameron must pay $1,900 for health insurance coverage with NRM insurance. Would he buy the insurance? Why or why not?

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M91723514

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