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Suppose the typical Florida resident has wealth of $500,000, of which his or her home is worth $100,000. Unfortunately Florida is infamous for its hurricanes, and it is believed there is a 10 percent chance of hurricane that could totally destroy a house (a loss of $100,000). However, it is possible to retrofit the house with various protective devices (shutters, roof bolts, and do on) for a cost of $2,000. This reduces the 10 percent chance of a loss of $100,000 to a 5 percent chance of a loss of $50,000. The homeowner must decide whether to retrofit and thereby reduce the expected loss. The problem for an insurance company is that it does not know whether the retrofit will be installed and therefore cannot quote a premium conditioned on the policyholder choosing this action. Nevertheless, the insurance company offers the following two policies from which the homeowner can choose: (1) The premium for insurance covering total loss is $12,000 or (2) the premium for insurance covering only 50 percent of loss is $1,500. The typical homeowner has a utility function equal to the square root of wealth. Will the homeowner retrofit the house, and which insurance policy will homeowner buy? Will the insurance company make a profit (on average) given the homeowner's choice?
Describe why marginal analysis must be used in decision making with examples. Also, give examples of poor decision-making when sunk costs were used to justify choices, and discuss how legal and ethical issues may play a role in making decisions.
Country B Apples=36 Bananas=15 1. Calculate the pretrade relative price of Apples in terms of Bananas. Relative price of Bananas 2. Which country has a compartive advantage in Apples ANd in Bananas
i draw the budget line and the relevant indifference curve for a consumer who is initially a borrower. indicate the
A market contains a group of identical price-taking firms. Each firm has a marginal cost curve SMC(Q) = 2Q, where Q is the annual output of each firm. A study reveals that each firm will produce if the price exceeds $20 per unit and will shut down
1. employee benefits have become more and more an important part of employee compensation. according to the text
To prevent gasoline values from having devastating effects on economy it has been proposed that all gasoline values in U.S. be fixed at the average value for the past 2-years.
The CEO of Always Ready Round Tire has decided to open a battery division. He thinks that batteries would sell well with tires at their outlets and that Always Round's quality reputation will be transferred to the batteries.
read the thomas article squeeze play and discuss how long you think the emerging upstart airline carriers in asia that
The demand for illegal drugs is inelastic. Much of the expenditure on illegal drugs comes from crime. Assuming these statements to be correct, What is the most effective way of decreasing the quantity of drugs consumed
What will be the scale effect of this change on use of capital and labor and why? How would this be shown on an isoquant diagram? ( a diagram isnt needed here either.)What will be the net or total effect of this decline in the cost of capital on th..
A firm uses two inputs into production: capital and labor. In the short run, the firm cannot adjust the amount of capital it is using, but it can adjust the size of its workforce. What happens to the firm's average total cost curve, the average va..
decrease in your real income that results when photographic equipment you purchase increases in price because of increased demand by others for these items. cost you bear when your neighbor has a noisy party and does not compensate you for your dis..
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