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2. Maya has $100 to spend, but she faces uncertainty. If accident occurs, she loses $50. If 02. accident does not occur, she can spend all her income. The accident probability is 쪄 Her utility function is given by where c is her consumption measured in $ (a) What is her expected utility (in utility units)? If she can buy insurance that offers S1 coverage at the price of S0.25, then does she buy the insurance? If so, how much does she buy? (c) Instead of (b), if the insurance market is perfectly competitive, then what is the com- petitive price of the insurance? With this competitive price, how much does she buy insurance? Detailed explanations and correct answers
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