1.Jack Strong has $50,000 of wealth. He is participating in a Jujitsu competition. The prize is...

1.Jack Strong has $50,000 of wealth. He is participating in a Jujitsu competition. The prize is $10,000. He is guaranteed to win it (hehasblack belt) unless he breaks his arm. If his arm is broken, he will lose the tournament and he will have to pay $5,000 in medical expenses. Jack thinks that the probability of him breaking his arm during a tournament is 5 percent. He can get a medicalinsurance at a price of $.3 dollars for each $1 of coverage.

a)Write down his consumption if he does not purchase medical insurance.

b)Write down his consumption if he purchases medical insurance.

c)Derive the equation for Jack’s budget constraint.

d)Plot Jack’s budget constraint on the graph.

Solutions

Expert Solution

SOLUTION :-

Rahul Sunny answered 1 year ago

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