# Assume that consumers are identical in all respects expect for their loss probabilities; some are high risk, and others are low risk.

Assume that consumers are identical in all respects expect for their loss probabilities; some are high risk, and others are low risk. Members of the high-risk group have loss probability pH = 65%, whereas members of the low risk group have loss probability pL = 35%.Each consumer has initial wealth of \$100 and utility U(W)=W.5.There are only two possible states of the world, loss and no loss. If a loss occurs, then consumers lose their initial wealth of \$100. Insurance contract offeringsPolicy A provides full coverage for a price of \$65.Policy B provides full coverage for a price of \$45.50.Policy C provides 60% coverage for a price of \$39.Policy D provides 30% coverage for a price of \$13.65.Which policy pair should you offer, assuming that you are interested in maximizing profit?

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