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There are two types of drivers, high-risk drivers with an accident probability of 2=3 and low risk drivers with an accident probability of 1=3. In case of an accident the driver suffers a loss of 1. The initial wealth of both types of drivers is 2. Both types are expected utility maximizers with utility index u(z) = ln z.
(i) what is the maximum insurance premium that each type would be willing to pay to fully insure their accident risk?
(ii) there is an equal number of drivers of both types so that the overall accident prob- ability is 1=2. Assume that the government offers an insurance contract that has a premium of 1=2 and covers the full cost of the accident. Would the low risk types accept this contract?
(iii) Now assume that the government offers a full coverage contract that has a premium of 2=3 and a partial coverage contract with coverage C and premium C=3. Write down the inequality that must be satis?ed to ensure that high-risk types prefer the full coverage contract over the partial coverage contract.
The Maju Supermarket stocks Munchies Cereal. Demand for Munchies is 4,000 boxes per year and the super market is open throughout the year. Each box costs $4 and it costs the store
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From the information given, what seems to be the main flaw in each of the following statistical generalisations? (i) Banking industry employees are facing a crisis, if their
Using Chi Square Test when more than two Rows are Present To understand this, let us consider the contingency table shown below. It gives us the information about the stage
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