Utility Assignment | Homework For You

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    Utility Assignment | Homework For You

    Your current disposable income is $10,000. There is a 10% chance of a storm damaging your home, causing damage that will cost $1900 to repair. (There is a 90% chance that nothing will happen.) Your utility function is U = √ I where I is income. Question1 : What is the fair price of an insurance policy that will cover the cost of damage to your home, in the event of a storm? (a) $100 (b) $190 (c) $199 (d) $270 Question2 : If this policy is priced at $40, what is the change in your expected utility if you purchase the policy rather than no insurance? (a) 1 (b) 0.8 (c) 0.2 (d) 0 Question3 : What is the most you would be willing to pay for

    Your current disposable income is $10,000. There is a 10% chance of a storm damaging your home, causing damage that will cost $1900 to repair.
    (There is a 90% chance that nothing will happen.) Your utility function is U = √ I where I is income.
    Question1 : What is the fair price of an insurance policy that will cover the cost of damage to your home, in the event of a storm?
    (a) $100 (b) $190 (c) $199 (d) $270
    Question2 : If this policy is priced at $40, what is the change in your expected utility if you purchase the policy rather than no insurance?
    (a) 1 (b) 0.8 (c) 0.2 (d) 0
    Question3 : What is the most you would be willing to pay for this policy (rather than no insurance) ?
    a) $100 (b) $190 (c) $199 (d) $270. Get Economics homework help today