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 A Musician and an IT Consultant both have rather risky incomes

Economics

 A Musician and an IT Consultant both have rather risky incomes. If they have a good month, each will earn $10,000, but if they have a bad month, each will earn $6.000 Their risks are independent in that if one of the individuals has a good or bad month, it has no effect on the other individuals income. The two individuals have decided to pool and split their incomes to try and stabilize their incomes. Using this information, answer the questions below showing how their income is stabilized and how their utility changes. Note: Keep as much precision as possible during your calculations. Your final answer should be accurate to at least two decimal places a) Fill in the following table, showing the amounts they get each (not total) (Top left box to fill in = Both have a good month, Top right box to fill in = Musician has a good month and IT Consultant has a bad month, etc...) IT Consultant Good Month ($) Bad Month ($) Musician 10,000 6.000 Good Month (S) 10,000 20,000 16,000 Bad Month (S) 6,000 16,000 12.000 Using the data in the table you created, compute the average utility that each participant gets from his or her income with no pooling of risk, and with risk pooling Suppose that the utility of both of the individuals having a bad month is 20. the utility from one of the individuals having a good month and the other having a bad month is 96, and the utility from both individuals having a good month is 140 5) What is the average utility that each participant gets from his or her income with no pooling of risk Average Utility = 0 per participant =) What is the average utility that each participant gets fror bis or her income with pooling of risk. Average Utility = 0 per participant

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