2. Given the fair price which you computed in part 1), would a risk neutral motorist who is a bad risk want to purchase the contract? 3. Assuming only the bad risks buy the insurance contract , what is the fair price of the contract? Exercise 18 There are 200 child workers in a village who must choose how to allocate their work day between working in the fields and working in a sweatshop run by a multinational company. Working in the fields earns each child g1/day, so every child is willing to work all day for the sweatshop if the wage exceeds al per day. The company can get any amount of labor in a different country at a wage of :2/day, so it will only wish to hire workers from the village if the wage is at or below 52/day. If the wage is strictly below g2/day, the multinational will want to hire all its labor from the village , an amount of labor which is too large for the village to supply all. 1. What is the equilibrium wage for a work day in the village? 2. Given the equilibrium wage computed in part 1), what is the surplus/day that child workers receive over the utility that they would be making by working in the fields? 3. Suppose now that the company is forbidden from employing child laborers . What is the surplus/day that child workers receive over the utility that they would be making by working in the fields? 4. What other rationales either from the point of view of efficiency or equity would provide an economic justification for banning child labor ? Explain Exercise 19 There are 2,000 television set owners in a town. A television network broadcasts over the airwaves and its signal cannot be interfered with; everyone who owns a television set is able to view the network's broadcasts. The network has to decide whether to produce a new reality show. Each reality show episode is valued at :20 by each television set owner. That is, each tv set owner would be willing to pay at most $20 to view each episode of the show Producing each episode costs $10,000. At most, 30 episodes can be produced. 1. Is consumption of the new show rival? 2. Is consumption of the new show excludable