Change in initial wealth on their maximum willingness

Assignment Help Business Economics

Reference no: EM13798240

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) 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.

Reference no: EM13798240

Questions Cloud

Industry wide agreement concerning the extent of advertising : What is the payoff table? If the firms act independently what advertising level should each choose? Could the firms profit by entering into an industry wide agreement concerning the extent of advertising?

How video clip relates to the article om manifesto : how the video clip relates to the article " Om Manifesto" (i.e. how does The Secret support the main idea of Keri English's article?). Use at least two quotes from Keri English's article to support your answer.

Describe the advantages and disadvantages of free trade : Describe the advantages and disadvantages of free trade. Explain if free trade can ever be fair. Justify your response.

What management ideas could be used to help organizations : What methods are used by managers to keep everyone in the loop and in the evolution of many current organizations, what management ideas could be used to help organizations be more successful?

Change in initial wealth on their maximum willingness : 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 ..

Is the perfectly competitive model a good benchmark : Is the perfectly competitive model a good benchmark for an economic system which uses Biblical worldview? Use Scriptural support where appropriate and also comment on the perfectly competitive model as a guide for public policy. What should be the ro..

Based on multifactor productivity : Tried and True’s accountant (from Problem 1-1) suggests that monthly rent and hourly wage rate also be factored into the productivity calculations. Annandale pays the highest average wage at $6.75 an hour. Tried and True is not sure it can keep all f..

Different trade theories were explain benefits of free trade : Different trade theories were used to explain benefits of free trade and market liberalization. However, by the end of the twentieth century, voices of discontent were beginning to rise from Asia to North America. Identify and read at least three j..

Individual assignment on nursing theory grid : Individual Assignment Nursing Theory Grid

User Account

All Pages