(Scenario: Deciding on Insurance Type Under Uncertainty) Use Scenario: Deciding

(Scenario: Deciding on Insurance Type under Uncertainty) Use Scenario: Deciding on Insurance Type under Uncertainty. For $2,000, the Garcia family can buy insurance that will cover the full cost of any accident. If family members are risk averse and want to maximize their expected utility, they will:
Scenario: Deciding on Insurance Type under Uncertainty
The Garcia family owns three cars and is considering buying insurance to cover the cost of repairs made necessary by accidents. They face two possible states: state 1, in which their cars require no repairs, and their income available for purchasing other goods and services is $50,000; and state 2, in which their cars require $10,000 worth of repairs, and their income available for purchasing other goods and services is reduced to $40,000. The probability that their cars will require repairs is 10%; the probability that they will not is 90%.

A) buy the insurance.
B) be indifferent between buying and not buying the insurance, since their expected income available for purchasing other goods and services is $48,000 regardless of what they do.
C) buy the insurance as long as the utility of having a certain income of $48,000 to buy goods and services other than car repairs is higher than the utility associated with their expected income without insurance.
D) self-insure.