# Image transcription text stion 27 Henry is selling his farm. The price is \$50 thousand but may become \$20 thousand if the land is contaminated.

Image transcription text stion 27
Henry is selling his farm. The price is \$50 thousand but may become \$20 thousand if the land is contaminated. The probability that his farm is
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contaminated is . An agency offers an insurance as follows: the price of the insurance is \$0.2 thousand per unit of coverage and whenever the farm
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is found to be contaminated, the insurance pays \$1 thousand per unit of the insurance purchased. After Henry made his insurance purchase, let we be
Henry’s wealth if the farm is contaminated and Wine be Henry’s wealth if the farm is not contaminated. Which of the following equation represents the
laq
possible combinations of We and wine that Henry can have (in the unit of thousand dollars)?
stion
O a. We =-Wne + 220
O b. We = -4wnc + 50
O C. We =-4wnc + 220
Od. We = -Wne + 50
stion 28
(continued from Q27) Suppose that Henry’s utility function over his wealth (in the unit of thousand dollars) is u(w) – w. Find the optimal we that
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maximizes his expected utility.
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nts out of
O a. 20
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O b. 110
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O C. 70
O d. 50
estion 29
(continued from Q27 and Q28) How many units of the insurance are purchased if Henry maximizes his expected utility?
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O a. 20
ints out of All 3 questions are parts of the first one. Options given for Q29 are 20,70,112.5,50