Question: Suppose that your utility function is U = ln(3C), where C is the amount of consumption you have in a given year. Suppose that you

Suppose that your utility function is U = ln(3C), where C is the amount of consumption you have in a given year. Suppose that you make $30,000 per year, but there is a 5 percent chance that, in the next year, you will get sick and lose $20,000 in income due to medical costs

(a) What is your expected utility if you do not have insurance to protect against this adverse event?

(b) Suppose you can buy insurance that will cover all your losses if you get sick. What would be the actuarially fair premium? What is your expected utility if you buy the insurance policy?

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