Amy’s utility function is U = √ C, where C is consumption and is
given by C = Income − Expenses. Amy’s income is $10,000 and there
is a 5% chance that she will get sick, which would cost $3,600 in
medical expenses.
(a) (5 points) What is Amy’s expected utility if she doesn’t
have insurance?
(b) (5 points) What is the actuarially fair premium for a
full-coverage insurance plan? What is the actuarially fair premium
for an insurance plan...