Mel Is Thinking of Going on a Cruise

Multiple Choice

Mel is thinking of going on a cruise. Mel values a cruise in nice weather at $2,000 and values a cruise in bad weather at $50. The probability of nice weather is 60 percent and the probability of bad weather is 40 percent. Trip insurance is sometimes available. If purchased, it allows travelers to delay the cruise until the weather is nice. Suppose that the price of the cruise is $1,200. If Mel is risk-neutral, then Mel should:

A) not buy trip insurance.
B) only buy trip insurance if it costs less than $780.
C) only buy trip insurance if it costs less than $20.
D) only buy trip insurance if it costs less than $50.