## Answers

W U(W) = 600 - 200 probability of accident is o.l probability on not getting, accident is 0.9 Initial wealth is $100. While consumer would end up with $1 ib meet with accident. EU (no insurance) = 0.1XC600 - 200 ) +0.9 (6.06. - .0 - 578.

2 001 Leto be the premium. I too EU (with insurance) = 6oor e TW-P 900 600-100-P 101

100 Goo - 2007, 578.2 » 21.87 20 » 0.10971 100-P 01044 700 p = 4.17 < 100-P p < 99.84 PL 90.83 consumer's maximum willingness to pay is $90083, 2 e) Expected probit = 90.83 - .1 X 99 - $80.93. LE(A)=P-KiLg Tiz porolo out acci dent L= amount out lochy C) Let, insurance premium is $50. probability of accident is a doua .: we have a +[600-400) + V (600- 2,00) (600-90005), • 18(800 - 200 ) atw (600-400 5967 40 t 5980 7 596-407 5980 5567, 5989 = 0.927 U a< 0.92 . The smallest value a iy 0.92 so that consumer purchase insurance.

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