Jane obtains utility W1/2 from wealth W. Jane has $100, but there is a 25% chance she will require surgery which costs $64.
(a) Sketch this utility function, indicating the values of Jane’s wealth if she does and if she does not need surgery.
(b) calculate the expected value of Jane's wealth
(c) calculate Jane's expected utility
(d) what is Jane's certainty equivalent?
(e) an insurance company incurs a cost of $4 per additional contract it sells. Can the company profitably insure Jane? Explain