2.13 Carolyn and Sanjay are neighbors. Each owns a carvalued at $10,000. Neither has comprehensive insur-ance (which covers losses due to theft). Carolyn'swealth, including the value of her car is $80,000.Sanjay's wealth, including the value of his car is$20,000. Carolyn and Sanjay have identical utility ofwealth functions, U(W) = W0.4. Carolyn and Sanjaycan park their cars on the street or rent space in agarage. In their neighborhood, there is a 50% prob-ability that a street-parked car will be stolen duringthe year. A garage-parked car will not be stolen.a. What is the largest amount that Carolyn is willingto pay to park her car in a garage? What is themaximum amount that Sanjay is willing to pay?b. Compare Carolyn's willingness-to-pay to San-jay's. Why do they differ? Include a comparison

answer a ) Probability of car being stolen-p=0.5 Probability of car not being stolen-1-p=0.5 First…

a. What is the largest amount that Carolyn is willing to pay to park her car in a garage? What is the maximum amount that Sanjay is willing to pay? b. Compare Carolyn's willingness-to-pay to San- jay's. Why do they differ? Include a comparison

a. What is the largest amount that Carolyn is willing to pay to park her car in a garage? What is the maximum amount that Sanjay is willing to pay? b. Compare Carolyn's willingness-to-pay to San- jay's. Why do they differ? Include a comparison

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

2.13 Carolyn and Sanjay are neighbors. Each owns a car
valued at $10,000. Neither has comprehensive insur-
ance (which covers losses due to theft). Carolyn's
wealth, including the value of her car is $80,000.
Sanjay's wealth, including the value of his car is
$20,000. Carolyn and Sanjay have identical utility of
wealth functions, U(W) = W0.4. Carolyn and Sanjay
can park their cars on the street or rent space in a
garage. In their neighborhood, there is a 50% prob-
ability that a street-parked car will be stolen during
the year. A garage-parked car will not be stolen.
a. What is the largest amount that Carolyn is willing
to pay to park her car in a garage? What is the
maximum amount that Sanjay is willing to pay?
b. Compare Carolyn's willingness-to-pay to San-
jay's. Why do they differ? Include a comparison

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