Suppose a consumer has a utility function u(x)=10 √x, where x is the money income of the consumer. Suppose the consumer's initial endowment is Rs. 50. Suppose she may suffer a loss of Rs. 25 with a probability of 0.5 for some random event. Suppose she pays p premium for an insurance policy that fully reimburses her if she suffers a loss. How much premium p would she be willing to pay to insure against the loss?
1
12.50
2
13.57
3
11.59
4
14.41