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If Sempronius' utility function is v(x) = 5((x)^(1/2)) + 99, he has exactly the same certainty equivalent and risk premium as above, with utility function u(x) = (x)^(1/2). Calculate Sempronius's risk premium for v(x) =(x)^(1/4). Suppose Sempronius can buy an insurance in order to hedge himself against the risk. Find Simpronius's maximum willingness to pay for insurance (maximum insurance premium that insurance company can charge and Semronious will be willing to pay for it). Assume he will buy full coverage.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M91608516

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