•Use the conventional model of the demand for insurance to determine Josephine’s 1) expected payout; 2)...

•Use the conventional model of the demand for insurance to determine Josephine’s 1) expected payout; 2) expected utility and 3) the maximum Josephine is willing to pay for insurance given the following:

•U = 2.5Y1/2; her probability of illness is 15%

•The cost of medical care if she gets sick is: $15,000

•Her annual income is $80,000

•Think points A, B, C, D

Expert Solution

Solution:

1) Expected Payout = $77750

2)Expected Utility = 696.647379

3) Maximum Price Josephine is willing to pay for insurance = $2349.1885

Rahul Sunny answered 2 years ago

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