**John's Wealth and Utility Analysis**John owns and runs a food truck and expects to increase his wealth to $40,000 this year. John knows that every year, there is a 20% chance that his truck will be firebombed by one of his ruthless food truck competitors. If this happens, he will face a bill of $10,000 in repairs and lost income. John can choose to get insurance to cover all repair costs and lost wealth. Use this information and the information in the table and graph below to answer the questions.### Wealth and Utility Table| Wealth | Total utility (utils) ||----------|-----------------------|| $32,000 | 730 || $34,000 | 755 || $36,000 | 785 || $38,000 | 792 |### Graph: Total Utility vs. WealthThe graph plots total utility against wealth, illustrating a positive correlation where increased wealth results in higher total utility. - **Horizontal Axis (X-Axis):** Represents Wealth in dollars, ranging from $5,000 to $55,000.- **Vertical Axis (Y-Axis):** Represents Total Utility in utils, ranging from 100 to 1000.- The curve in the graph shows that as wealth increases, total utility increases, albeit at a decreasing rate.### Questions and Answers1. **What is John's expected wealth?** - Expected wealth: **$42,000**2. **What is the price for John’s insurance?** - Price of insurance: **$10,000**3. **What is John’s expected utility without insurance?** - Expected utility: **730 utils**4. **If John chooses to pay the insurance policy price, what would be his total utility?** - Total utility: **1030 utils**This analysis helps to understand the impact of potential risks on John's wealth and utility, and the role of insurance in mitigating this risk. The utility values reflect how John values different levels of wealth in terms of well-being or satisfaction.

The given probability that damage will occur, P = 20% = 0.20 Probability of no damage = 1 - P =>…

John owns and runs a food truck, which is a 20% chance that his truck will be firebombed by one of his of $10,000 in repairs and lost income. John can choose to get in information and the information in the table and graph to answe

John owns and runs a food truck, which is a 20% chance that his truck will be firebombed by one of his of $10,000 in repairs and lost income. John can choose to get in information and the information in the table and graph to answe

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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