3. Suppose you're a professional athlete and you're expecting to eam M2 this year. However, if you get injured, you will eam M1 instead. The probability of getting injured is na, and the cost of $1 insured is y. Your consumption will be Cl if there is an accident and C2 if there is no accident. Your utility function is U(c,,c) = , In(c,) + Amg In (c2). a) Determine your optimal Cl and C2. b) Suppose the probability of you having an accident is 6%, the cost of $1 insured is 0.09. Also, M2 is $200,000, and MI is 120,000. What are the optimal Cl and C2? Is this ful" insurance?

3. Suppose you're a professional athlete and you're expecting to eam M2 this year. However, if you get injured, you will eam M1 instead. The probability of getting injured is na, and the cost of $1 insured is y. Your consumption will be Cl if there is an accident and C2 if there is no accident. Your utility function is U(c,,c) = , In(c,) + Amg In (c2). a) Determine your optimal Cl and C2. b) Suppose the probability of you having an accident is 6%, the cost of $1 insured is 0.09. Also, M2 is $200,000, and MI is 120,000. What are the optimal Cl and C2? Is this ful" insurance?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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