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3. A student has a Bernoulli utility function given by MW) 2 W1 3. A student has a Bernoulli utility function given by u(W) W
3. A student has a Bernoulli utility function given by MW) 2 W1\
3. A student has a Bernoulli utility function given by u(W) W 1/2 where W is her wealth. Suppose that the student's wealth consists entirely of her collection of microeconomics textbooks, which have a value of $100. There is a 1% probability that these books will be completely destroyed by an accident. She can buy full insurance for a total cost of $Q, which will pay $100 if an accident occurs (NOTE: This is the total cost of full insurance, not the per dollar cost). What is the maximum price this individual would be willing to pay for this insurance? What are the expected profits of the insurance company if the individual pays this amount?
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