Essay
Maria is planning a trip to Hawaii. The utility from the trip is a function of how much she spends on it (Y)given by U(Y)= log Y. Maria has $10,000 to spend on the trip. If she spends all of it, her utility will be: U(10000)= log(10000)= 4.
Suppose there is a 25 percent probability that Maria will lose $1000 of the cash on the trip. What is the maximum amount that Maria would be willing to pay to insure $1000?
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EU(without insurance)= 3.9886....View Answer
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Correct Answer:
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