Consider a risk averse firm with utility function U(z)=z^1-g/(1-g) Further assume that D=5, y=10, and g=0.5. Calculate the care level chosen by the firm under the strict liability rule for the two probability functions in exercise 10.1. Compare the levels to the socially optimal care levels.

Data from exercise 10.1

Consider the probability functions p(a)= min{1/a,1} and p(a)=1+a(a-2). Calculate the socially optimal levels of care for the
simple model outlined in section 10.1.