It is compulsory you provide your Excel file with your calculations for your assignment 2 being marked. Otherwise, you will receive 0 marks on this assignment.

You are a consultant, located in Gunnedah. One of your clients is a local farmer who has five possible alternative crops to grow in her property next season and she needs to decide if to buy insurance is appropriate. You decided to evaluate the five possible crops using an Expected Utility Model (EUM) approach. In an interview with the farmer, you were able to collect this information about her utility at different income levels (in AUD000):

Table 1. Utility of farmer Amber Lawrence at different income levels.

Expected Income (AUD'000)	Kasey Chambers Utility
$0	0
$100	20
$200	34
$300	47
$400	58
$500	67
$600	74
$700	80
$800	85
$900	89

During the interview, Amber mentioned she is considering growing barley, cotton, sorghum, sunflower or wheat, given the characteristics of her farm. Note that it is not possible to combine crops, so only one must be chosen. Based on weather forecasts and market information you are able to create the following Payoff Table of the Expected Profit:

Table 2. . Payoff Table per hectare for five different crops (in AUD000)

	States of Nature and Probability
	Very Dry	Dry	Mild	Wet
	20%	30%	30%	20%
Alternative 1 Barley	300	400	600	-200
Alternative 2 Cotton	-200	100	300	400
Alternative 3 Sorghum	100	300	700	-300
Alternative 4 Sunflower	-100	300	400	200
Alternative 5 Wheat	100	200	500	-200

7. (All students) The government is offering an insurance that can take away the weather risk that could be faced in the worst two states of nature, giving the farmer an equivalent to the second best state of nature. If the insurance cost is constant per hectare = $50 (in AUD'000), should the farmer buy the government insurance? If yes, which crop should the farmer choose? (15 Marks)