Insurance (10 points) Anna expects a regular future income payment of 1000. However, there is a 10% chance that she might make 8.000. She wants to insure against the short-fall of income below the 8.000. Hence, she considers buying insurance in case she only receives a regular job. She is risk averse and has a utility function of u(c) =/c. a. Consider a competitive insurance sector with insurance contracts that provide protection against low pay. Which premium would a competitive insurance company charge in order to break even? b. How much insurance would Anna buy under such conditions? C. By how much could she increase her expected utility with the competitive insurance? d. Explain briefly the underlying mechanism of the insurance contract. e. Which type of problems will arise with such insurance contracts against "low pay? How does this observation relate to insurance contracts that are offered in the real world. Insurance (10 points) Anna expects a regular future income payment of 1000. However, there is a 10% chance that she might make 8.000. She wants to insure against the short-fall of income below the 8.000. Hence, she considers buying insurance in case she only receives a regular job. She is risk averse and has a utility function of u(c) =/c. a. Consider a competitive insurance sector with insurance contracts that provide protection against low pay. Which premium would a competitive insurance company charge in order to break even? b. How much insurance would Anna buy under such conditions? C. By how much could she increase her expected utility with the competitive insurance? d. Explain briefly the underlying mechanism of the insurance contract. e. Which type of problems will arise with such insurance contracts against "low pay? How does this observation relate to insurance contracts that are offered in the real world