2. Economics
3. the town of scoville has 2200 family units for simplicity...

# Question: the town of scoville has 2200 family units for simplicity...

###### Question details
The town of Scoville has 2,200 family units. For simplicity, we will take each family unit to be one person. Each person is an expected utility maximizer with the "square root" Bernoulli utility function: u(x)=√x. There are two types of inhabitants: 200 have a wealth of $700,000, and they have houses worth$300,000 each (the total wealth includes the house); the remaining 2,000 people have a wealth of $150,000 each, and they have houses worth$100,000 (and the total wealth again includes the house). For any house, there is a 1% chance that it would have a fire in any given year. If there is a fire, the loss to the inhabitant would be 80% of the value of the house.