Ann purchases insurance against damage to her phone wires at 45 cent a month, even though the probability that she incurs a repair cost of $60 is only 0.4%. Is such behavior consistent with the rational behavior (it means, does it yield the highest payout for Ann between the two choices), given that Ann's utility function is u = ? w, and w = 60 is her initial wealth? What if her wealth is w = 70?

Suppose that Bob's wealth is w = 60, and that his utility function is u = w^1/3 . Suppose that he also purchases the same insurance. Is his purchase of insurance consistent with the rational behavior? Compare your answer, assuming w = 60, with Ann's utility, and explain the difference.

Problem 1: Ann purchases insurance against damage to her phone wires at 45 cent a month: even though the probabilityr that she incurs a repair cost of $55 is onlyr 5.4%. Is such behavior consistent with the rational behavior [it means: does it yield the highest payoff for Ann between the two choices], given that Annls utility function is u = . and w = {if} is her initial wealth? 'What if her wealth is w = 7G? Suppose that Eob's wealth is so = EU: and that his utilit},r function is u = soil. Suppose that he also purchases the same insurance. Is his purchase of insurance consistent with the rational behavior? Compare your answer! assuming w = El]. with Ann's utility! and explain the cli'erence