She has the option of buying health insurance

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Suppose an individual makes $40,000 of income per year. Her utility function is given by , where x is her income minus expenses. She realizes that there is about a 5% probability that she may suffer a heart attach in any given year. The cost of treatment will be $20,000 if a heart attack occurs.

She has the option of buying health insurance for $1,500 per year, which will cover all expenses in case of a heart attack. Should she buy this health insurance?

(Note: Is a different way of writing the square root of x)

Reference no: EM132244698

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