Problem 1 Maria's preferences between consumption across states of the world are given by: U(Fs, Fy) = !1 InFs + (1 - 1). In FH Suppose Alex has the same preferences as Maria where he can spend $400 on food if it's sunny but only $75 if there's a hurricane. However, II = 0.60 and he faces a premium of 60 cents for each dollar of promised benefit. a) Find the following: i) How much will he pay for flood insurance (M)? ii) How much insurance will he purchase (B)? iii) What is the "value of insurance for Alex? b) Given R 2 , find the smallest value of such that Alex buys zero insurance. Repeat Problem 2 assuming that Alex's indifference curves are L-shaped. Problem 1 Maria's preferences between consumption across states of the world are given by: U(Fs, Fy) = !1 InFs + (1 - 1). In FH Suppose Alex has the same preferences as Maria where he can spend $400 on food if it's sunny but only $75 if there's a hurricane. However, II = 0.60 and he faces a premium of 60 cents for each dollar of promised benefit. a) Find the following: i) How much will he pay for flood insurance (M)? ii) How much insurance will he purchase (B)? iii) What is the "value of insurance for Alex? b) Given R 2 , find the smallest value of such that Alex buys zero insurance. Repeat Problem 2 assuming that Alex's indifference curves are L-shaped