Answer to Question #68722 in Microeconomics for radhika
If she falls ill - Rs. 25, p = 2/3
U(y) = y1/2
(a) Sita may accept the insurance, if the probability of illness is too high and the insurance payment is affordable. As p = 2/3, Sita will accept the insurance.
(b) The maximum amount that Sita would pay for the insurance can be calculated according to probabilities:
i(max) = 100*1/3 + 25*2/3 = 33.33 + 16.67 = 50.
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