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

(a) Suppose Edward’s utility function can be written as:

U = 20Y where U is utility and Y is income per month.

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 Y 0.5 . 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 Y 2 . 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?