Farmer Brown faces a 25% chance of there being a year with prolonged drought, with zero yields and zero profit, and he faces a 75% chance of a normal year, with good yields and $100,000 profit. These probabilities are well-known. Suppose that an insurance company offered a drought insurance policy that pays the farmer $100,000 if a prolonged drought occurs. Assume that the farmer’s utility function is u(c) = ln(c). He has initial wealth of $40,000.  What is the economic intuition on why X > Y? Confine your answer to at most three sentences.

Q: Suppose that there is a 2.2% chance a planet will develop life, a 3.1% chance that the life will…

A: Probability represents possibility. It is a branch of computation that contracts with the event of a…

Q: According to the customer's beliefs, the expected value of the accounting system, or the expected…

A: Markets are efficient when perfect information about the goods and services is available to both the…

Q: Suppose a player's true batting average is Normal, with mu = .272, and standard deviation, sigma =…

A: Probability is a mathematical concept that measures the likelihood of an event occurring within a…

Q: Consider an insurance company that sells car insurance to several thousand households in south…

A: Formula needed-Variance= (Standard deviation)2In this case, the standard deviation is 5%, so the…

Q: Shimadzu, a manufacturer of precise scientific instruments, relies heavily on the efforts of its…

A: The optimal managerial compensation contract is portrayed in a climate in which the. administrator…

Q: probability

A: Decision-making refers back to the system of selecting a path of action among numerous alternatives…

Q: Consider insurance that is actuarially fair, meaning that the premium is equal to expected claims:…

A: The potential loss for the person is $4000. Probability of loss = 0.3 Agent's wealth = 10,000 The…

Q: Leo owns one share of Anteras, a semiconductor chip company which may have to recall millions of…

A: The stock price is the current value of stock for buyers and sellers.

Q: Farmer Brown faces a 25% chance of there being a year with prolonged drought, with zero yields and…

A: Probability of drought = 25% Probability of normal year = 75% Inital Wealth = 25,000

Q: Question 1) An expected utility maximiser owns a car worth £60000 and has a bank account with…

A: Note:- “Since you have asked multiple question, we will solve the first question for you. If you…

Q: 1) Explain the importance of continuous variables.

A: A continuous variable is a variable whose worth is acquired by estimating, ie one which can take on…

Q: An individual has the utility function U(I) = I^(1/2), where I is their net income. (Note that I to…

A: The projected net pay-off of actuarially fair insurance is $0. An insurance contract is actuarially…

Q: ora has a monthly income of $20,736. Unfortunately, there is a chance that she will have an accident…

A: Leora has a monthly income of $20,736. If an Accident Happens then the cost is 10,736 Probability of…

Q: A risk averse investor with utility function: u(w) = (w)1/2 where w represents wealth, He has $200…

A: P1: $50 in the risky asset, $150 in the risk-free asset (Total wealth $200)

Q: Suppose that Mike, with utility function, u(x) = / <+5000, is offered a gamble where a coin is…

A: The certainty equivalent is a guaranteed return that someone would accept now, rather than taking a…

Q: A plaintiff believes that there is a 30% chance that he will winIf he wins, he will gain $50,000. It…

A: It is given that there is a 30% chance of winning. The gain is $50,000 if he wins and there are…

Q: Consider an individual who gets a utility of u(x) - x^1/2 from his total wealth x. Amsume that he…

A:

Q: A local company has offered a construction job to a contractor. The value of the contract depends on…

A:

Q: utility

A: Utility, in economics, refers back to the satisfaction or properly-being that a person derives from…

Q: Please show how to solve this in excel for 1 - 6 below Consider an investment for which the expected…

A:

Q: Consider a person with a current wealth of $100,000 who faces the prospect of a 25 percent chance of…

A: This concept of insurance can be explained as a financial arrangement in which a person or entity…

Q: Assume that the probability of having an accident in a year is 0.08. Suppose that your yearly income…

A: Expected Utility refers to an economic term summarizing the utility that an organization or…

Q: Suppose that there is asymmetric information in the market for used cars. Sellers know the quality…

A: Given:The buyers know the probability of getting a lemon car = 30%Price of high quality used car =…

Q: A manager has to decide whether to prepare a bid or not. It costs P5,000 to prepare the bid. If the…

A: According to the provided information, At the end of the success branch, P100000 is the return, but…

Q: Soft selling occurs when a buyer is skeptical of the usefulness of a product and the seller offers…

A: The expected value is explained as the difference between expected profits and expected expenses.…

Q: Priyanka has an income of £90,000 and is a von Neumann-Morgenstern expected utility maximiser with…

A: The Von Neumann-Morgenstern (VNM) utility index is an index that measures an individual's preference…

Q: (a) Is Bill risk-averse, risk-loving, or risk-neutral? Explain. (b) If Bill could buy insurance to…

A: We need to look at Bill's utility function and his response to risk to establish if he is…

Q: Redo the problem in Question 2 under the assumption that the person can buy flood insurance at a…

A: Contingent consumption refers to the consumption of the buyer when there are uncertain conditions.…

Q: Suppose a company offers a standard insurance contract with a premium (r) of $1,000 and a payout (q)…

A: Insurance is a financial arrangement or contract where an individual or element (the policyholder)…

Q: If the farmer uses pesticides he expects a crop of 60,000 bushels; if he does not use pesticides he…

A: It is given that when a farmer uses the pesticides, he expects a crop of 60,000 bushels and when not…

Q: Q1) An expected utility maximiser owns a car worth £60000£60000 and has a bank account with…

A: Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: The table below shows that a sales agent can work with either low, or high amount of effort. Low…

A: EffortWageCost of effortNet wageTotal profitNet…

Q: Bob is considering whether to purchase a warranty to provide insurance on his new computer. There is…

A: The expected utility tells us what will that person's average utility when he can lose and when he…

Q: Redo the problem in Question 2 under the assumption that the person has utility function u(c) =…

A: Contingent consumption refers to the consumption of the buyer when there are uncertain conditions.…

Q: An expected utility maximiser owns a car worth £60000£60000 and has a bank account with…

A: Car Worth = 60,000 Account balance = 20,000 50% chances that car will be stolen

Q: The Minister of Transport released its Festive season road accident statistics which shows that the…

A: Given: The utility function: U H = H The probability of an accident is = 8% The road accident cost…

Q: Monty Burns, the owner of the Springfield Nuclear Power Plant, owns many real estate properties. His…

A: Monty's Utility function : U(a) = w0.5 Miss b utility function : U(b) = y    (where , y = income )…

Q: Assume a firm located in a non-urban location pays a wage of $34/hour. However, it is assumed that…

A: The labor market is the market in which equilibrium is determined on the basis of the labor demand…