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Business, 18.02.2020 02:59 sriharin58ozhj9m

Speed Racer likes to get where he is going fast, but he hates having accidents. Unfortunately, the faster he goes, the higher the probability that he will crash his car (the powerful Mach 5). a. Draw Speed Racer's budget line between speed and probability of a fatal accident (PFA) putting speed on the y-axis Now draw Speed Racer's indifference curves assuming his prefer- ences are convex. Show the optimal combination of speed and PFA. b. Suppose that Speed Racer's mother is worried about Speed's safety. She forces him to install a driver's side air bag, and other safety equipment in his car. However, she pays all the costs of these modifications. Show how Speed's budget line and optimal choice change.

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