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 (he has black 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 medical insurance at a price of $.3 dollars for each $1 of coverage.

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shomerajeshwari90 shomerajeshwari90 · Answer 1 · 2022-10-17T16:37:49+02:00

He’ll get the prize of dollar 10000, then the consumption after adding dollar 1500 is: $10000 + $1500 = $11500

a) the derive equation is 50000 + 10000 + x

jack has maximum amount of wealth = $50,000

When he participated in a jujitsu competition then the prize amount = 10,000

Then we will take a variable x for derive the equation which will depend on that he will win and loose :

Here,

the equation is = 50000 + 10000 + x

b) His consumption after not purchasing medical insurance is $15000.

if, he does not purchase medical insurance then he has no coverage of insurance and

He’ll lose the tournament and he’ll have to pay medical expenses dollar 5000 and also the prize amount $10000

So, his consumption after not purchasing medical insurance is:

$10000 + $5000 = $15000

c) when he will purchase medical insurance then his total consumption is $3500

his consumption if he purchase medical insurance, he will give dollar1 for medical insurance and will get in return dollar .3 ,

When he will have to pay for medical insurance $5000, then he’ll get the coverage on medical insurance:

0.3 * 5000 = $1500

Now, subtracting the amount of medical insurance which he’ll have to pay:

$5000 - $1500 = $3500

He’ll get the prize of dollar 10000, then the consumption after adding dollar 1500 is:

$10000 + $1500 = $11500

learn more about of equation here :

brainly.com/question/27822778

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