Suppose a Consumer's Expected Utility Function Given Two Possible States

Multiple Choice

Suppose a consumer's expected utility function given two possible states of nature A and B can be expressed in terms of consumption of food,F,in both states as U(F_A,F_B) = [0.6 × ln(F_A) ] + [0.4 × ln(F_B) ].For this utility function,MU_A is (0.6/F_A) and MU_B is (0.4/F_B) .Without insurance,the consumer can consume 200 in state A but only 50 in state B. The consumer can purchase insurance at a premium of 50 cents per dollar of benefit. What is the value of the insurance she purchases?

A) $4.74
B) $4.85
C) $12.67
D) $114.87