(Answered) Consider a utility function utility5radicincome your income

Management Studies

Consider a utility function: Utility=5√(income). Your income is $144, but there is an illness going around the area that costs $95 to cure. There is a 20% chance that you will catch this illness. What is your expected income? What is your expected utility? How much would a competitive insurance company charge as a premium to cover this illness? Using a graph and a few well-chosen sentences, explain why someone with this utility function would pay this insurance premium.

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