A consumer has utility u(I) = VI and income $1,000. When sick, the consumer must go to the doctor, which costs a $400 without insurance. If the consumer goes to the gym, the probability of getting sick is 20%, but if she does not go to the gym, the probability of getting sick is 90%. The cost of going to the gym is $50. An insurance company is offering a health insurance plan that will fully cover the cost of going to the doctor. The cost of this insurance is $100 Use this information to answer #16 and #17. 16. The consumer's expected utility from purchasing insurance and going to the gym is а. 24.5 b. 25.6 с. 29.2 d. 30.0 е. 30.1 17. In this situation, consumers will and the insurance company will earn a. Purchase insurance and go to the gym; negative profit b. Purchase insurance and stop going to the gym; negative profit c. Purchase insurance and go to the gym; positive profit d. Purchase insurance and stop going to the gym; positive profit e. Not purchase insurance and go to the gym; no profit

A consumer has utility u(I) = VI and income $1,000. When sick, the consumer must go to the doctor, which costs a $400 without insurance. If the consumer goes to the gym, the probability of getting sick is 20%, but if she does not go to the gym, the probability of getting sick is 90%. The cost of going to the gym is $50. An insurance company is offering a health insurance plan that will fully cover the cost of going to the doctor. The cost of this insurance is $100 Use this information to answer #16 and #17. 16. The consumer's expected utility from purchasing insurance and going to the gym is а. 24.5 b. 25.6 с. 29.2 d. 30.0 е. 30.1 17. In this situation, consumers will and the insurance company will earn a. Purchase insurance and go to the gym; negative profit b. Purchase insurance and stop going to the gym; negative profit c. Purchase insurance and go to the gym; positive profit d. Purchase insurance and stop going to the gym; positive profit e. Not purchase insurance and go to the gym; no profit

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that Lizzo's utility function U is given by U = w.53, where w is wealth. Lizzo has wealth of £21,500 but faces a probability of getting ill and being left with only £11,180. She has an 0.8 probability of being well and a 0.2 probability of being ill.
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