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Please solve step by step. Thank you! Question 3: Informal Risk Sharing Arrangements Raghav is a farmer with zero wealth (so his consumption will equal
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Question 3: Informal Risk Sharing Arrangements Raghav is a farmer with zero wealth (so his consumption will equal his income). His farm income, y, is subject to risk from pests. Pest infestation can take three possible values: Low, Medium and High. If he works hard (which we will assume he does for parts (a) - (d)) then the probabilities of getting Low, Medium and High infestation levels are 2/6, 3/6, and 1/6 respectively, and his farm income under Low, Medium and High infestation levels is 100, 81, and 1 respectively. Table 9 summarizes these probabilities and incomes. Working hard imposes a utility cost of 8 to Raghav. His utility function if he works hard is U(C)=C1, where C is his consumption. Table 9. Income and Probabilities if a farmer works hard (a) What is the expected value of income from farming and working hardStep by Step Solution
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