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Daniel LaRusso and Johnny Lawrence work for MD-EF Company, Inc. Both are risk-averse in income and have the following utility inction of wealth: mm =
Daniel LaRusso and Johnny Lawrence work for MD-EF Company, Inc. Both are risk-averse in income and have the following utility inction of wealth: mm = W During any given year, the probability of becoming ill for Daniel is PDaniel = 0.15 and for Johnny is PJohnny = 0.3. Both Daniel and Johnny have $5,000 in initial wealth. If a person falls ill, the cost of treatment (that is, damages) is $1200. MD-EF Company is deciding whether to offer insurance to Jim and Dwight. The rm is assumed to be risk-neutral. Each worker pays MD-EF Company a premium at the beginning of the year, and if the worker falls ill, the insurer will pay the worker some amount of coverage. Daniel and Johnny know their respective probability of falling sick but neither MD-EF Company nor MD-EF Company's insurance company can observe their health status. Daniel and Johnny will, of course, misrepresent their type if it is in their interest to do so. MD-EF Company decides what insurance plan (coverage and premium) to offer Daniel and J ohrmy, and Daniel and Johnny decide whether to purchase the plan or not by maximizing their expected utility, What is the maximum premium that MD-EF can charge Daniel so that Daniel is indifferent between buying and not buying insurance? '5 (Round to 2 decimal places) What is the maximum premium that MD-EF can charge Johnny so that Johnny is indifferent between buying and not buying insurance? $ (Round to 2 decimal places) A Would MD-EF Company be willing to offer Daniel a full coverage insurance contract at a premium of $185? v A Would MD-EF Company be willing to offer Johnny a full coverage insurance contract at a premium of $185? w
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