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Question: Jonathan has $1 million in savings and owns a house. With a 0.1% probability, the house burns down and costs $800,000 to rebuild. He can buy insurance at a cost of $1.20 per $1,000 of coverage (for example, if he pays $12 in insurance, he is repaid $10,000 if the house burns down). Jonathan's preferences over realized wealth are given by u(m) = √m.
a. What is Jonathan's optimal amount of insurance to purchase?
b. Suppose Jonathan can "fire-proof" his home, guaranteeing that it will not burn. What is the most that he should be willing to pay to do this?
The current price of a stock is $50. Suppose the following distribution describes the possible prices that the stock will be in 1 year.
The maintenance for the computer engineering building (in Problem 5.40) will climb at $5000 per year. How much larger a donation must Computer Colleagues make?
Find the equilibrium quantity and price by solving the following supply and demand system algebraically and by using Solver to maximize the difference between con- sumer and producer surplus. pd = 1,000 - 100qd, ps = 25qs.
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As in part A there is a 50% chance the share market crashes. If John maximises expected utility, what value of ß should he choose?
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For instance, how does the globalization increase the company's business risk (in terms of demand or supply? Or cost?)? What are strategies that the company can adopt to protect its interests? Provide tables or graphs to illustrate your point.
Suppose that the president proposes a new law aimed at reducing healthcare costs. All Americans are required to eat one apple daily. How would this apple a day affect the demand and equilibrium price of apples?
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Calculate consumer and producer surplus before and after the tax. How much tax revenue does Where town receive? How much deadweight loss is caused by the tax?
Suppose P = 20 ? 2Q is the market demand function for a local monopoly. The marginal cost is 2Q. The firm currently uses a standard pricing strategy. Which of the following will allow the firm to enhance the profits?
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