(Fill in the 4 blanks.)A monthly pass for the Stockholm subway costs $100, and fare dodgers who are caught face a fineof about $160. Stockholm transport has increased the number of ticket checks conducted, and theprobability of being caught while riding the subway without paying is now 1%. Liam rides thesubway 50 times a month, so that each month the probability that he is caught equals 50 x 1% =!3!50% and he expects to pay 50 (0.01 x $160) = $80 in fines each month he rides thesubway without buying the monthly pass.If Liam does not purchase a monthly pass, his expected monthly savings are $(accepted format is dollars and cents xXx.xx).Liam's utility of saving $S equals VS , so that if he does not purchase a monthly pass, hisexpected utility equals(round to 2 decimals: xxx.xx).Liam's certainty equivalent is savings equal to $52.42, and thus Liam's(do notcapitalize your answer and make sure to spell correctly) is $7.58.Liam can purchase full insurance from Planka.nu, which will pay the fine every time Liam is caughtriding the subway without a pass. Liam is willing to pay up to $(acceptedformat is dollars and cents x.xx) a month for insurance from Planka.nu.

Since there are multiple parts to this question, we are answering the first two for you. Given, A…

A monthly pass for the Stockholm subway costs $100, and fare dodgers who are caught face a fine of about $160. Stockholm transport has increased the number of ticket checks conducted, and the probability of being caught while riding the subway without paying is now 1%. Liam rides the subway 50 times a month, so that each month the probability that he is caught equals 50 x 1% = 50% and he expects to pay 50 (0.01 x $160) = $80 in fines each month he rides the subway without buying the monthly pass.

A monthly pass for the Stockholm subway costs $100, and fare dodgers who are caught face a fine of about $160. Stockholm transport has increased the number of ticket checks conducted, and the probability of being caught while riding the subway without paying is now 1%. Liam rides the subway 50 times a month, so that each month the probability that he is caught equals 50 x 1% = 50% and he expects to pay 50 (0.01 x $160) = $80 in fines each month he rides the subway without buying the monthly pass.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.5P

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