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Question III 40 Marks Assume the following: One period Two individuals - Sonny and Ma'a Both Sonny and Ma'a own a car valued at 10
Question III 40 Marks Assume the following: One period Two individuals - Sonny and Ma'a Both Sonny and Ma'a own a car valued at 10 At t = 0 Sonny has wealth Y of 80 (including the car) and Ma'a has wealth Y of 20 (including the car) There is a 50% probability that a car parked on the street will be stolen. Both Sonny and Ma'aarevon Neumann-Morgenstern utility maximizers with the identical utility function U(Y=y0.40 Both Sonny and Maa can either park their car on the street or rent garage space. If they park their car in a garage, the cars will not be stolen. Answer the following: (a) Derive an expression (function of parameter Y) for the maximum amount that either Sonny or Ma'a would pay for garage parking for one year. O Question III 40 Marks Assume the following: One period Two individuals - Sonny and Ma'a Both Sonny and Ma'a own a car valued at 10 At t = 0 Sonny has wealth Y of 80 (including the car) and Ma'a has wealth Y of 20 (including the car) There is a 50% probability that a car parked on the street will be stolen. Both Sonny and Ma'aarevon Neumann-Morgenstern utility maximizers with the identical utility function U(Y=y0.40 Both Sonny and Maa can either park their car on the street or rent garage space. If they park their car in a garage, the cars will not be stolen. Answer the following: (a) Derive an expression (function of parameter Y) for the maximum amount that either Sonny or Ma'a would pay for garage parking for one year. O
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