Question 1 (30 points) Melissa has a beach house that worth $200000. Being located on a beach brings a possibility of flooding during the hurricane season. If there is a hurricane then damaged house would worth $50000. Melissa thinks that the probability of flooding is 10%. Melissa can purchase flood insurance at a cost of 5 cents for each $1 worth of coverage. Melissa's expected utility is U(Ch, Cnh) = 0.1\\ch + 0.9venh; where ch represent her wealth in the event of hurricane and CA is her wealth in if there is no hurricane. How much insurance coverage should Melissa buy? Question 2 (30 points) Let's modify Melissa's problem from Q1 a little bit. Melissa has a beach house that worth $200,000. Being located on a beach brings a possibility of flooding during the hurricane season. If there is a hurricane then damaged house would worth $100,000. Melissa thinks that the probability of flooding is 10% and to cover her repair costs in the event of flooding wants to purchase flood insurance. The insurance company offers two insurance plans: Plan A: There is no deductible, each $1 worth of coverage costs 10 cents and the insurance company at most would make Melissa "whole", i.e the max- imum payment that the insurance company would pay in the event of flooding is such that Melissa can restore the house back to its original state Plan B: There is $10,000 deductible, i.e., if Melissa wants to restore her house she must pay the first $10,000 and the insurance would pay the remain- ing amount up to the purchased coverage amount or the amount that make Melissa "whole", whichever is smaller. Each $1 worth of coverage costs 100/16 cents. Melissa's expected utility is U(Ch, Cah) = 0.1 Inch + 0.9Inch, where ch rep- resents her wealth in the event of hurricane and can is her wealth if there is no hurricane. Should Melissa purchase any of those plans? If yes, which one and how much insurance coverage should Melissa buy