3. (40 marks) Jane owns a house worth $100,000. Assume that her wealth consists entirely of the house. In any given year, there is a 2% percent chance that the house will burn down. If it does, its scrap value will be $30,000. Jane's utility function is U(w) = 2/w. a. Draw Jane's utility function (plotting utility against wealth). b. Show whether Jane is risk averse. c. If the insurance premium is 2.5 cents per dollar insured, how much insurance will Jane buy? d. Heidi, Jane's sister, owns a house with the same value ($100, 000) and with the same chance (2%) of burning down. The scrap value of the burned house is also $30,000. Find the expected utility foe Jane if the two sisters share the losses equally. Assume the accidents of fire for the two houses are independent.

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Cost of Production

In economic theory, production costs are the costs incurred by an industrial organization when it engineers a project or provides a service that generates revenue and benefits. Labor costs, raw materials, consumable manufacturing costs, and general overhead sum up, accounting for production costs. Total cost data is calculated by combining total direct costs of materials, labor costs, and total production costs.