(b) (5 pts) If c were to increase, what happens to the reservation wage and the number of searches performed? (c) (5 pts) Suppose we interpret each search as taking one week. If the gov- ernment provides unemployment insurance, this can be thought of as a reduction in 0, since this reduces the opportunity cost of being unem ployed an extra week. Reinterpret your previous answer to describe how unemployment benets will affect job search. 5. Consider Alex's car insurance from Question 2, except the insurance company offers to reimburse fraction 6 6 [0,1] of the damage. (a) (5 pts) How much caution will he choose to exercise (as a function of 5)? What is the expected damage? Identify any corner solutions, since c cannot be negative. (b) (5 pts) What is the actuarially fair premium? (c) ( 5 pts) What is Alex's expected utility, given the caution he chooses and the premium he pays? ((1) (5 pts) What amount of coinsurance 5 would maximize Alex's expected utility? Give some intuition for this result. How would you expect it to change if Alex were risk averse? 6. Continue with the principal/ agent TV repair problem from Question 3. (a) (8 pts) Set up and solve Alex's maximization problem to chooses the op- timal contract, 19* and ct\