Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Business Economics Expert

Utility from Income & Insurance

A person derives utility from income, and assume that the utility function is U=Y0.5. Assume a person has annual income of $40,000 but in any given year there is a 10% chance the person's car will be damaged requiring a repair of $17,500.

a. Provide an equation that describes expected utility in this instance and provide a numeric value for expected utility.

b. Suppose this person could purchase insurance that would pay for all losses if the car accident occurs. What is the most this person is willing to pay for this type of car insurance? Please show all your work.

c. Suppose the utility function is not the square root of income but instead, utility is linear in income, where U=Y. How does your answer to parts a) and b) change when utility is linear?

d. Provide an intuitive explanation for why the person in part a) is willing to pay more for insurance than the person in part c)?

 

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M927717

Have any Question? 


Related Questions in Business Economics

Hannah and sam run moretown makeovers a home remodeling

Hannah and Sam run Moretown Makeovers, a home remodeling business. The number of square feet they can remodel in a week is described by the Cobb-Douglas production function Q = F(L,K) = 10L0.5K0.5, where L is their numbe ...

Please let us access free resources to try at our institute

Please let us access free resources to try at our institute Jubail Technical Institute (www.jti.edu.sa). If it is approved by higher managment later, we can have deal or an agreement with you for further course of action ...

A hedge fund currently has assets of 500 million the annual

A hedge fund currently has assets of $500 million. The annual fee structure of this fund consists of a fixed fee of 1% of portfolio assets plus a 20% incentive fee. The fund applies the incentive fee to the gross return ...

Discuss the probable justification for each of the

Discuss the probable justification for each of the following aspects of the tax law a. A tax credit is allowed for amounts spent to furnish care for minor children while the parent works. b. Deductions for interest on ho ...

Some members of the tea party movement want to repeal the

Some members of the Tea Party movement want to repeal the seventeenth Amendment, Which provides for electing U.S. senators popular vote. If the amendment were repealed, state legislatures would choose each state's senato ...

Assignmentrespond to discussion questions with 150-200

Assignment Respond to Discussion Questions with 150-200 words. In your efforts to provide the answers, I would like to encourage you to also use personal experiences in your responses. Also, cite information from your te ...

Assignmentother retail businesses in the mall in which your

Assignment Other retail businesses in the mall in which your sports shoes shop is located have decided to open on Sundays from Noon to 6 P.M. You decide to follow suit but two of your employees refuse to work on Sunday s ...

Normal and inferior goods are differently impacted by

Normal and inferior goods are differently impacted by recessions. Examples include new cars versus fast food. The textbook examples include jewelry, gourmet pet food, dollar general stores. For this assignment, research ...

You have just been hired as a financial analyst for

You have just been hired as a financial analyst for Barrington Industries. Unfortunately, company headquarters (where all of the firm's records are kept) has been destroyed by fire. So, your first job will be to recreate ...

Suppose you are interested in the hypothesis that internet

Suppose you are interested in the hypothesis that internet access is a significant contributor to cross-country income differences. The nai¨ve approach would be to look at the correlation between PPP GDP p.c. and interne ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate