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Baker trains and shows miniature Shar-Pei dogs. His favorite is a dog named Wilson. Wilson's current value, based on offers Baker has received, is $1000.

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Baker trains and shows miniature Shar-Pei dogs. His favorite is a dog named Wilson. Wilson's current value, based on offers Baker has received, is $1000. Baker plans to take Wilson to multiple dog shows during the next year, and based on his years of experience, Baker knows that if Wilson doesn't performance well at these shows the dog' 5 value could decrease to as little as $300. Letx be Wilson's value in dollars. and assume Baker's utility function is U = J5. The distribution of potential values for Wilson is as follows: it Rm 1000 .6 300 .4 a) Would Baker be willing to purchase insurance to guard against Wilson's potential loss of value? If not, explain why not. If so, find the largest premium Baker would be willing to pay to be fully insured. Show clearly how you arrive at your answer. b) Baker approaches his friend Deshaun and asks if Deshaun would be willing to sell him a full insurance policy for $200. Deshaun currently has an income [y] of $800, and his utility function is U = y2. Will Deshaun be willing to sell Baker the policy? Show clearly how you arrive at your

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