In the summer of 1984, Nicholai opened a small art gallery in the West Village and amassed a collection worth $2,600,000. An insurance company figured there was a 5% chance the collection would be destroyed and worth $0. Nicholai has utility u(x) = x0.5. If Nicholai purchases full insurance at a fair price, his expected utility would be while if he declines the insurance he would face an expected utility of а. 1,487.5; 1,531.8 b. 1,487.5; 1,444.9 с. 1,571.6; 1,531.8 d. 1,571.6; 1,444.9

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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In the summer of 1984, Nicholai opened a
small art gallery in the West Village and
amassed a collection worth $2,60,000. An
insurance company figured there was a 5%
chance the collection would be destroyed and
worth $0. Nicholai has utility u(x) = x0.5. If
Nicholai purchases full insurance at a fair
price, his expected utility would be ___.
while if he declines the insurance he would
face an expected utility of
а. 1,487.5; 1,531.8
b. 1,487.5; 1,444.9
с. 1,571.6;B 1,531.8
d. 1,571.6; 1,444.9
Transcribed Image Text:In the summer of 1984, Nicholai opened a small art gallery in the West Village and amassed a collection worth $2,60,000. An insurance company figured there was a 5% chance the collection would be destroyed and worth $0. Nicholai has utility u(x) = x0.5. If Nicholai purchases full insurance at a fair price, his expected utility would be ___. while if he declines the insurance he would face an expected utility of а. 1,487.5; 1,531.8 b. 1,487.5; 1,444.9 с. 1,571.6;B 1,531.8 d. 1,571.6; 1,444.9
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