Insurance, Sita expects her future earnings to be worth Rs 100. If she falls ill, her, Microeconomics

Insurance, Microeconomics

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Sita expects her future earnings to be worth Rs 100. If she falls ill, her expected future earning will be Rs 25, There is a belief that she may fall ill 2 with probability of -3 while the probability of remaining in good health is 3. Let her utility function be given as u(y)= y Suppose that an insurance company offers to fully insure sita against loss of earnings caused by illness against an actuarially fair premium.

(a) Will Sita accept the insurance Explain

(b) What is the maximum amount that Sita would pay for the insurance?

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Insurance, Microeconomics

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