Could you solve last 3 questions Thank you Consider the following FIRE INSURANCE PROBLEM where fire partially destroys a $350,000 house.<EVENTFIRENO FIREPROBABILITY OUTCOME50,000350,0000.010.99INSURANCE PAYOUT< < <300,0000€(a) What do we mean when we say an agent is Risk Averse? <(b) Assume utility is U(x) = √(x/1000). Why does this utility function imply the agent is risk-averse?Use a figure/diagram to explain.(c) What is the expected utility of having no insurance for this risk-averse agent? What is thecertainty equivalent of no insurance? Show your work.(d) What is the maximum the agent will pay for insurance? Show your work. Note that insurancehere is complete.<(e) Assume instead that utility is U(x) = (x/1000)². Now what is the maximum the risk-loving agentwill pay for insurance? Show your work. Compare to the maximum payment for the risk-averseagent and discuss.<(f) Why is the risk-loving agent willing to buy insurance if they love risk? Explain fully the intuition.<

Part D) The maximum the agent will pay for insurance is equal to the expected loss, because this…

(d) What is the maximum the agent will pay for insurance? Show your work. Note that insurance here is complete. (e) Assume instead that utility is U(x) = (x/1000)². Now what is the maximum the risk-loving agent will pay for insurance? Show your work. Compare to the maximum payment for the risk-averse agent and discuss.< (f) Why is the risk-loving agent willing to buy insurance if they love risk? Explain fully the intuition.<

(d) What is the maximum the agent will pay for insurance? Show your work. Note that insurance here is complete. (e) Assume instead that utility is U(x) = (x/1000)². Now what is the maximum the risk-loving agent will pay for insurance? Show your work. Compare to the maximum payment for the risk-averse agent and discuss.< (f) Why is the risk-loving agent willing to buy insurance if they love risk? Explain fully the intuition.<

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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