The worth of consumer's house is 160, and her utility function is u(w) = √w. The probabilityof outbreak of fire is p = 1/2, and the fire will make 120 amount of loss of worth of house.Under the given conditions, consumer can join insurance that pay insurance money as B bypay insurance fee qB.(a) Find the amount of insurance that consumer will join.(b) Derive the condition that consumer will not join insurance.(c) Derive the condition that make consumer join full insurance.(d) Find the B, when the q is given as q = 3/5

First, we need to calculate the expected utility without insurance. The expected utility is the sum…

Answered: The worth of consumer's house is 160,…

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter7: Losses—deductions And Limitations

Section: Chapter Questions

Problem 47P

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