⦁ 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
- 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.
