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Consider the following consumer who is deciding whether to buy fire insurance for her new house. The probability of a fire incident is.1. In case
Consider the following consumer who is deciding whether to buy fire insurance for her new house. The probability of a fire incident is.1. In case of a fire, her total wealth is $1000 whereas if there is no fire incident her wealth would be $4000. Suppose each unit of insurance is sold at 30 cents per dollar. If her utility function is given by u(x) = ln x , find the optimal level of fire insurance for her
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