3) Both Adam and John are applying to insure their car against theft. Adam lives in a secure neighborhood, where the probability of theft is 10%. John lives in a lesser secure neighborhood where the probability of theft is 25%. Both Adam and John own cars worth $10,000, and are willing to pay $100 over an expected loss for insurance. How much would Adam be willing to pay for the insurance? How much would John be willing to pay for the insurance? Suppose the insurance company cannot tell them apart but expects them to be different values and charges them an average premium of $1850. Who is more likely to buy this insurance? Suppose the insurance company cannot tell them apart but expects them to be different values and charges them an average premium of $1850. How much profit would it make? If the company can correctly anticipate the adverse selection, what premiums should it charge? If the insurance company can correctly anticipate the adverse selection, who would be insured? 4) Spoon River College (SPC) has an ongoing problem that the electronic equipment in their classrooms and computer labs keeps malfunctioning and the repairs that are made seem to cause problems with some other aspect of the equipment. Due to its administrative structure, SPC has a hiring preference for their own students and is only allowed to pay $15 per hour when the going rate is closer to $18 per hour. How does this scheme contribute to SPC's equipment problems, in the context of Chapters 19 and 20?