We have discussed the role of utility functions in the purchase of insurance. (a) Suppose Edwards utility

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We have discussed the role of utility functions in the purchase of insurance.

(a) Suppose Edward’s utility function can be written as:image text in transcribed

What is his marginal utility if income is $1,000 per month? $2,000 per month? Is Edward likely to insure against loss of income? Why?

(b) Suppose instead that Edgar’s utility function can be written as U = 200 Y0.5 . What is his marginal utility if income is $1,000 per month? $2,000 per month? Is Edgar likely to buy insurance against loss of income? Why?

(c) Suppose that Edmund’s utility function can be written as U = 0.5 Y2 . What is his marginal utility if income is $1,000 per month? 2,000 per month? Is Edmund likely to buy insurance against loss of income? Why?

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The Economics Of Health And Health Care

ISBN: 9781138208049

8th Edition

Authors: Sherman Folland, Allen C. Goodman, Miron Stano

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