Bob has an initial wealth of $1200 but faces a 50% chance of losing $800 to doctors' bills in the coming year.Insurance is available at a rate of 60¢ per $1 of coverage.This means that if Bob purchases $X in coverage,it costs 6X¢ and pays $X towards Bob's doctors' bills.If Bob's utility function is U(w)= 2
,how much insurance (X)will Bob purchase?

Question

Bob has an initial wealth of $1200 but faces a 50% chance of losing $800 to doctors' bills in the coming year.Insurance is available at a rate of 60¢ per $1 of coverage.This means that if Bob purchases $X in coverage,it costs 6X¢ and pays $X towards Bob's doctors' bills.If Bob's utility function is U(w)= 2  
,how much insurance (X)will Bob purchase?

Quizplus · Accepted Answer

The Answer of Bob has an initial wealth of $1200 but faces a 50% chance of losing $800 to doctors' bills in the coming year.Insurance is available at a rate of 60¢ per $1 of coverage.This means that if Bob purchases $X in coverage,it costs 6X¢ and pays $X towards Bob's doctors' bills.If Bob's utility function is U(w)= 2  
,how much insurance (X)will Bob purchase?

Bob Has an Initial Wealth of $1200 but Faces a 50