Homework SourseIf the probability of an injury is 005 the cost of the injur
If the probability of an injury is 0.05, the cost of the injury is $8,019, the insurer’s loading costs are $3,806, and the number of policies is 283, then in a competitive insurance market, each policy will cost $____.
Jimmy will have $73,084 in wealth and a utility of 285 when he is healthy and $34,627 in wealth and a utility of 167 when he is ill. What is Jimmy\'s expected utility if the chance of illness is 0.14%?
| If the probability of an injury is 0.05, the cost of the injury is $8,019, the insurer’s loading costs are $3,806, and the number of policies is 283, then in a competitive insurance market, each policy will cost $____. Jimmy will have $73,084 in wealth and a utility of 285 when he is healthy and $34,627 in wealth and a utility of 167 when he is ill. What is Jimmy\'s expected utility if the chance of illness is 0.14%? |
Solution
If the probability of an injury is 0.05, the cost of the injury is $8,019, the insurer’s loading costs are $3,806, and the number of policies is 283, then in a competitive insurance market, each policy will cost
283 / 3806 = 0.0743
Jimmy will have $73,084 in wealth and a utility of 285 when he is healthy and $34,627 in wealth and a utility of 167 when he is ill. What is Jimmy\'s expected utility if the chance of illness is 0.14%?
285 +167 = 452 * 0.0014 =0.6328
| Jimmy will have $73,084 in wealth and a utility of 285 when he is healthy and $34,627 in wealth and a utility of 167 when he is ill. What is Jimmy\'s expected utility if the chance of illness is 0.14%? |
