Question 1
Refer to the data provided in Table 17.1 below to answer the following question(s). The table shows the relationship between income and utility for Jane.
Refer to Table 17.1. From the table, we can see that Jane is
◦ risk-averse.
◦ risk-loving.
◦ risk-neutral.
◦ We cannot determine Jane's attitude toward risk from the table.
Question 2
Refer to the data provided in Table 17.1 below to answer the following question(s). The table shows the relationship between income and utility for Jane.
Refer to Table 17.1. Suppose Jane has a 1/3 chance of becoming disabled in any given year. If she does become disabled, she will earn $0. If Jane does not become disabled, she will earn her usual salary of $60,000. Jane has the opportunity to purchase disability insurance which will pay her her full salary in the event she becomes disabled. On average, how much would such a contract cost the insurance company (per person)?
◦ $20,000
◦ $30,000
◦ $40,000
◦ $60,000
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