Marcus is an expected utility maximizer with the Bernoulli utility function u(w) = √w. He faces a gamble in his wealth. In a good state he gets 81 and in a bad state he gets 9. He can take out an insurance plan which will leave him with a wealth of 49 in each state. (a) (b) (c) state? Is Marcus risk averse? Will he purchase the insurance if the probability of the states is 1/2 for each Let p denote the probability of the good state. For what value(s) of p will Markus be just indifferent between taking out the insurance and not taking it out? Show your working.

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