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Suppose Audrey and Nicky are cousins with a destructive streak. Audrey is 1 year old and has a 10% chance of creating substantial damage in the next year, in which case the expected cost is $2000. Nicky is 2 years old and has a 5% chance of creating substantial damage in the next year, in which case the expected cost is $3000. In both cases their parents would be responsible for the damage, and their parents are risk averse
a) If the insurance company were able to differentiate based on age, and offered actuarially fair insurance, how much would they charge Audrey’s parents and Nicky’s parents for insurance?
b) Once Nicky’s parents have bought insurance, how is their behavior likely to change compared with when they did not have insurance? What is this called?.
c) Suppose Nicky’s parents have $10,000 of wealth initially, but their wealth increases to $20,000 due to a bequest. Find the effect of this change in initial wealth on their maximum willingness to pay for insurance if their utility function is where c is their total wealth.
Suppose an economy has no imports and no income taxes. Its marginal propensity to consume (MPC) is $0.75, and its real GDP level is $250 billion. Businesses increase their investment by $10 billion. Calculate the multiplier and the change in GDP.
Walmarts decision in 1994 to continue operating stores in specific cities in Mexico when other firms were pulling out would be classified as
q. 1. why indifference curves are downward sloping?2. why indifference curves are flatter whenever moving to the
You've recently learned that the company where you work is being sold for $475,000. The company's income statement indicates current profits o. $18,000, which have yet to be paid out as dividends. Assuming the company will remain a " going concern" i..
Revenue Function's Independent Variable is the Output. Copy Rights are the Natural Monopoly. Water Supply is the Natural Monopoly. Cost Equation's Independent Variable is the Output. Marginal Revenue is the Price in all cases.
The relevant cost in economic decision-making is the opportunity cost of the resources rather than the outlay of funds required to obtain the resources.
Explain the meaning of monetary neutrality and illustrate graphically that there is monetary neutrality in the long run in the aggregate demand–aggregate supply model.
Bailey, Inc., is considering buying a new gang punch that would allow them to produce circuit boards more efficiently. The punch has a first cost of $100,000 and a useful life of 15 years. At the end of its useful life, the punch has no salvage value..
What is your monthly interest rate and what is your annual effective interest rate? What is the future worth of a series of equal monthly payments of $5,000 if the series extends over a period of six years at 9% interest compounded? You borrowed $150..
Explain how foreign exchange rates are determined. How do changes in interest rates, inflation, productivity, and income affect exchange rates?
According to tournament theory: Pay gaps between job positions get larger at successively higher levels in the organizational hierarchy. High executive pay is due to moral hazard. People seeking the CEO’s job compete to acquire the right signal about..
How is corporate venturing used as an aid to search for innovation opportunities? Explain the relationship of the organization’s strategic plan and vision statement to the corporate venturing methodology.
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