Mary's utility function for her asset position x is given by u(x) = 4"x^2+ 2*x^ 1/2. Currently. Mary's assets consist of $40,000 in cash and a $15,000 home. During a given year, there is a .003 chance that Mary's office will be destroyed by fire or other causes. How much would Mary be willing to pay for an insurance policy that would replace her office if it were destroyed?

Mary's utility function for her asset position x is given by u(x) = 4"x^2+ 2*x^ 1/2. Currently. Mary's assets consist of $40,000 in cash and a $15,000 home. During a given year, there is a .003 chance that Mary's office will be destroyed by fire or other causes. How much would Mary be willing to pay for an insurance policy that would replace her office if it were destroyed?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.5P

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the video link is: https://www.youtube.com/watch?v=aqEz6kvXhc8please give me detailed solutions and calculations, thank you!