Julia pays 500 for an insurance policy with an expected, Microeconomics

Julia pays 500 for an insurance policy with an expected

Problem

1. Julia pays $500 for an insurance policy with an expected value of $120. Explain why this is a rational choice for Julia.

2. Suppose that the crop yield of corn farmers in Iowa depends solely on rainfall levels. Also suppose that every part of the state gets approximately the same amount of rain as every other part in any given year. Will the corn farmers of Iowa be able to effectively use pooling to reduce their exposure to risk? Why or why not?

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Microeconomics: Julia pays 500 for an insurance policy with an expected

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