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You purchase a new smartphone for $650. Suppose that during one year, there is a 0.2 probability that you will drop the phone, a 0.2 probability you “send it for a swim” (drop it in water), and a 0.6 probability you avoid all accidents. If you drop the phone, you will crack the screen, which must be repaired for $150. If you drop it in water, it will be completely broken and you will have to replace it for the full cost. Assume that forgoing the phone, or using one with a cracked screen, is not an option. a. What is your expected loss from one year of smartphone ownership? b. The sales associate at the store offers to sell you an extended warranty that costs $130. If you damage or destroy your phone accidentally, the store will repair your phone or send you a new one. Assuming you are risk neutral, should you buy the warranty? c. Suppose the warranty costs $130, but in the event of either a cracked screen or broken phone, you must pay a $99 “service fee” before the store repairs your phone or sends you a new one. Assuming you are risk neutral, should you buy the warranty now? (Hint: Start by re-doing part (a) for the expected loss you will suffer if you have the warranty) d. Now let’s suppose you are risk neutral, but especially accident prone. Now there is a 0.3 probability you will crack the screen, 0.3 probability you will drown your phone, and 0.4 probability you will avoid all accidents. Should you buy the warranty as described in part (c)? e. Suppose you are not accident-prone. Can you think of any other situation where it might make sense for you to buy the extended warranty?
A young physician makes $250,000 per year with an annual salary increase of 2%. He is interested in buying a house. He has $130,000 in his savings account. The appraisal value for the house is $600,000. After exhaustive shopping for a mortgage, a ban..
"Angela view Apples and Bread as a perfect substitutes at a 1:1 ratio. Thus she will always spend half of her income on each good. Graphically illustrate, aided with verbal discussion, why isoquants cannot intersect.
Which of the following are included among the elements developed in the Restatement (Third) of Unfair Competition, § 46, for a right of publicity claim? Use of a person’s identity to gain a commercial advantage Interference with an individual’s priva..
Consider an individual who faces a gamble over two outcomes, In the first outcome he maintains the wealth of w1, and in the second outcome he faces a loss of wealth and is left with a final amount of w2.
Consider the following short-run production function: q = 5L2 - 1/3L3. Illustrate at what level of L do diminishing marginal returns begin. At what level of L do diminishing returns begin.
Stadium has commissioned a study that showed the demand by fans for stadium seats (per playing date) to be P = 22 - 0.2Q, where P is the price of a ticket and Q represents the number of seats (expressed in thousands). The local stadium seats a maximu..
Economic expansions in Europe and China would cause
Identify whether all the elements of negligence are present and, if so, who or what entity will be sued successfully:
You will apply important microeconomics concepts toward the competitive strategies of an organization that operates in an industry of your choice. You will evaluate the differences between market structures and identify a group of competitive stra..
A construction site uses two types of workers – skilled (S) and unskilled (U). They produce feet of new pavement (Q) per day according to the production function Q = 100S -5S2 + 50U – 5U2 Skilled workers are paid $200 per day, while unskilled workers..
elucidate how many units of fish could it now consume along with the 80 units of imported wheat.
A company hires management trainees for entry level sales positions. Past experience indicates that only 20% will still be employed at the end of nine months. Assume the company recently hired six trainees. What is the standard deviation of the numbe..
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