Initially, Maria consumes 400 kg of food when it's sunny and 75 kg of food when there's

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Initially, Maria consumes 400 kg of food when it's sunny and 75 kg of food when there's a hurricane (due to property losses from flooding). Her indifference curves are L-shaped, as in Discussion Question 2. Suppose that flood insurance is available, and that the premium, M, for each dollar of promised benefit is less than a dollar (but greater than zero). Solve for Maria's best choice as a function of M. How much insurance will she buy, and how much food will she consume?
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Microeconomics

ISBN: 978-1118572276

5th edition

Authors: David Besanko, Ronald Braeutigam

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