Question 3 {'; ' ' ' 2} Suppose there are two types of people, high risk (H) and low risk (L) with utility function U (c) = ell-5. Each has income (=consumption) of $100. The high risk people are 10% of the population and have a 75% chance of getting cancer in which case their income would be zero. The low risk people are the remainder of the population and have a 25% chance of getting cancer and hence zero income. The private insurance industry is perfectly competitive. (c) Insurers are afraid the government will take over the industry and decide to price in a dierent way. Mindful of the social consequences they will price so that the high risk is fully insured. What condition must be placed on the low-risk for this to be an equilibrium? (d) What is the expected utility of the low-risk given the condition you wrote for part (c)? (e) Low-risk people are not satised with this outcome and they convince the government to mandate pooled insurance for everyone at the actuarially fair rate (as in part (b)). Everyone will have the same income. Compute this level of income