There are two possible states of the world C and D. With probability 0.1 state C...

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There are two possible states of the world C and D. With probability 0.1 state C occurs. Without insurance, the buyer has $6000 in state C and $6000 in state D. His value of money in state C is u(x) = 10x and in state D it is u(x) = x. He is offered insurance at the rate of $0.2 per $1 of benefit paid in state D. (a) How many C state dollars is he willing to give up for an extra dollar in the state D without insurance? What is the intuition behind the number you found? (b) How many C state dollars does he have give up for an extra dollar in the state D with the given insurance? (c) How much insurance does he choose to buy? Explain the intuition behind your answer. (d) If the insurance contract changes to $0.1 per $1 of benefit paid out in state D. Will his choice change? Explain the intuition behind your answer. Note: We may submit this to the plagiarism checker if we suspect the use of unauthorized help or outside sources. Your work must be handwritten on a piece of paper or via an app/tablet. Typed responses get an automatic zero (except for Accessibility accommodations that we have received from ATS). There are two possible states of the world C and D. With probability 0.1 state C occurs. Without insurance, the buyer has $6000 in state C and $6000 in state D. His value of money in state C is u(x) = 10x and in state D it is u(x) = x. He is offered insurance at the rate of $0.2 per $1 of benefit paid in state D. (a) How many C state dollars is he willing to give up for an extra dollar in the state D without insurance? What is the intuition behind the number you found? (b) How many C state dollars does he have give up for an extra dollar in the state D with the given insurance? (c) How much insurance does he choose to buy? Explain the intuition behind your answer. (d) If the insurance contract changes to $0.1 per $1 of benefit paid out in state D. Will his choice change? Explain the intuition behind your answer. Note: We may submit this to the plagiarism checker if we suspect the use of unauthorized help or outside sources. Your work must be handwritten on a piece of paper or via an app/tablet. Typed responses get an automatic zero (except for Accessibility accommodations that we have received from ATS).