This person\'s current wealth is $700, and he faces a risky situation with two p

Question

This person's current wealth is $700, and he faces a risky situation with two possible outcomes, each of which are equally possible. This information is reflected on the graph. You don't have to guess at any values on the graph, either - any relevant information is specifically marked. From top to bottom along the vertical axis, those values are UA, UB, UC, and UD. From left to right along the horizontal axis, the values are 420, 500, 600, 700, 800, and 900.

The person depicted is _________________ because his utility of wealth curve is _______________.

If the person depicted "wins" the gamble (in other words, if the "good" option occurs), he will have total wealth of $___________.

If this person purchases insurance to avoid this risky situation, he will operate at utility level _________.

UD

Calculate the maximum amount this person would pay to buy insurance to avoid the risk and uncertainty of the gamble presented. Carefully follow all mathematical instructions.

Explanation / Answer

* Risk averse; concave.

*  $700.

* UB.

* $100.

*****

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