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Consider the problem of demand for insurance set up in Lecture 8. Assume that the vNM utility1 is 11(3) = log(x). Explicitly solve for the optimal...

Q8. Consider the problem of demand for insurance set upq8.jpeg

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8. Consider the problem of demand for insurance set up in Lecture 8. Assume that the vNM
utility1 is 11(3) = log(x). Explicitly solve for the optimal (1* and, using your derivation,
answer the following: a. The demand for insurance a" is increasing in wealth only when p > q.
b. The demand for insurance a” is decreasing in wealth only when p < q. c. Neither (a) nor (b) — how the wealth affects demand depends on how small the loss
L is. (1. None of the above. Blog(a:) __i
5:: — :c' 1. We are using the same notation log(:r) = ln(:r). In particular,

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