A risk averse individual faces uncertainty with two outcomes: good. bad. The individual has income $1260 at good and $T20 at bed outcome. The probability nggogi outcome is its {so the probability piped outcome is 1 - Tia = 2i9). The individual can buy any non-negative x units of insurance. Every unit of insurance has price Sp and it pays $1 in the event other: outcome. In this insurance market, the unit price of insurance is known to be p = 1i3. Question: Determine the individual's net income under good income. net income under bad income and the average net income. Draw these three in a diagram as functions at x.: Answer: Net income under good outcome (NG): NG=Ineomo under good outcome =$1260 Net income under bad outcome (NB): NB=Income under bad outcome - Insurance payoutNB = $720 - x ' p = $720 - 3x . . r 2 Average net Income (NA): Average net income = (?)$1260 + (;)($?20 3:) Therefore, NG = 1260 for the person's net income under a good outcome. NB shows a linear decrease with x in net income with the number of insurance units, whereas NA is a weighted average of good and bad results. Draw these three in a diagram as functions of x.: Based on the following information create a diagram: Plot the net income under good, bad, and average scenarios as functions of x. The good income line is horizontal at $1,260. The bad income line increases linearly with I, starting at $720. The average income line is a weighted average of the other two, leaning towards the bad outcome line as 3: increases