Description
1.Given the production function of profit-maximization firm is (a) Derive the input demand function (b) Derive the product supply function (c) Derive the profit function 2. Consider a strictly risk-averse decision maker who has initial wealth of $20,000, but who runs a risk of a loss of $10,000 with probability of 50%. (a) If an insurance company provides accident insurance to the decision maker, what is the fair premium rate? Under this fair premium rate, the decision maker insures completely. (b) If two insurance companies A and B provide insurance services at a fair premium rate, but company A requires customers to insures completely, company B does not allow customers to insure more than half of his wealth, prove that this person will buy company A’s insurance.
