PLEASE ANSWER PART C

2. Motorists can choose to drive cautiously or incautiously. Cautious driving causes expected accident costs of $500; incautious driving yields expected accident costs of $900. Cautious drivers incur a cost of $150 for their time and effort. Insurance policies offer full coverage of accident costs, and the insurance market is competitive. Insurers cannot observe driver caution.

a. In the table below, fill in the insurance prices and payoffs to the insurer and the driver.

Hint: Insurance relieves the driver of accident costs, but the payoff to the driver is negative because the driver must pay for the insurance as well as incur possible costs of exercising caution. The payoff to the insurer is the price minus the expected accident claims.

	Cautious Driving	Incautious Driving
Insurance Price = _______	_________, ________ (insurer, driver)	_________, ________
Insurance Price = _______	_________, ________	_________, ________

b. Which outcome is efficient? Justify your answer.

c. Does the driver have a dominant strategy? Explain.

d. Which outcome is the equilibrium? How much is the equilibrium deadweight loss?