An individual has the utility function: u( w) = VW, (1) where w is her wealth (in dollars). The investor's current wealth is currently $1 million, 3/4 of which is the value of her house. There is a 10 percent chance that her house will be destroyed by fire. If so, the value of the house is zero. (a) Write down her expected utility. Is she risk-loving, risk neutral, or risk averse?Draw a graph of her utility function and indicate her state-contingent wealth levels. (b) Suppose an insurance company offers the following policy: pay a premium P now; if and when her house burns down the insurance company will pay her in full for its replacement. What is the highest P at which she is willing to buy insurance? (c) Suppose all potential buyers of insurance are like the investor (i.e. have the same wealth, utility function, and risk of fire), and each insurance company insures a lot of them. What is the expected cost per house to an insurance company? An insurance company is willing to provide insurance as long as it earns nonnegative profit. For what range of premia P will the insurance market clear with all households insured