Suppose an individual makes $75,000 of income per year. Her utility function is given by , where x is her income minus expenses. She realizes that there is about a 2.5% probability that she may suffer a heart attack in any given year. The cost of treatment will be $50,000 if a heart attack occurs.

She has the option of buying health insurance, which will cover all expenses in case of a heart attack. What is the maximal amount she is willing to pay for health insurance?

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

Round all answers (also intermediate answers to 2 decimals).

	a.	0
	b.	2591.65
	c.	1576.34
	d.	2725.93

Answer rating: 100% (QA)

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