Scenario: Choosing Insurance the Ramirez Family Owns Three Cars and Is

Multiple Choice

Scenario: Choosing Insurance The Ramirez family owns three cars and is considering buying insurance to cover the cost of repairs.They face two possible states: state 1, in which their cars need no repairs and their income available for purchasing other goods and services is equal to $50,000; and state 2, in which their cars need $10,000 worth of repairs and their income available for purchasing other goods and services is reduced to $40,000.The probability of repairs is 10%, while the probability of no repairs is 90%.
(Scenario: Choosing Insurance) Refer to the information in the scenario Choosing Insurance.The Ramirez family can buy insurance that will cover the full cost of repairs for $900.If family members are risk-averse and maximize their expected utility:

A) they will buy the insurance.
B) they will be indifferent between buying and not buying the insurance, since their expected income for purchasing other goods and services is $49,000, regardless of what they do.
C) they will not buy the insurance, since buying it does not increase their expected income for purchasing other goods and services.
D) they will self-insure.