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

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

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