Consider the setup from Question 1. Suppose that another firm provides car insurance in which the agent can buy each unit of indemnity at an actuarially fair rate. What insurace coverage would the consumer choose under the new price? O a. £60000 O b. £30000 O c. £20000 O d. £40000
Consider the setup from Question 1. Suppose that another firm provides car insurance in which the agent can buy each unit of indemnity at an actuarially fair rate. What insurace coverage would the consumer choose under the new price? O a. £60000 O b. £30000 O c. £20000 O d. £40000
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Setup from question 1) An expected utility maximiser owns a car worth £60 000 and has a bank account with £20 000. The money in the bank is safe, but there is a 50% probability that the car will be stolen. The utility of wealth for the agent is u(y) = In(y) and they have no other assets.
Question:
![Consider the setup from Question 1. Suppose that another firm provides car insurance in which the agent can buy each unit
of indemnity at an actuarially fair rate.
What insurace coverage would the consumer choose under the new price?
a. £60 000
O b. £30 000
O c.
£20 000
O d. £40 000](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F9327414c-afc8-41e4-8a93-f2b6b7bc039a%2Ff745517b-ef06-4dc0-a77a-1da598173b7f%2Ftnptie_processed.png&w=3840&q=75)
Transcribed Image Text:Consider the setup from Question 1. Suppose that another firm provides car insurance in which the agent can buy each unit
of indemnity at an actuarially fair rate.
What insurace coverage would the consumer choose under the new price?
a. £60 000
O b. £30 000
O c.
£20 000
O d. £40 000
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