3. The number of major snowstorms that shut down business, X, has the following probability mass function (pmf) I = 1,2, 3, 4, 5 P(X = 1) = otherwise. An insurance company pays 10,000 per day, i.e., pays 10,000, 20,000, 30,000, 40,000, 50,000, if r 1, 2, 3, 4, 5, respectively. Find the expected amount paid by the insurance company.

3. The number of major snowstorms that shut down business, X, has the following probability mass function (pmf) I = 1,2, 3, 4, 5 P(X = 1) = otherwise. An insurance company pays 10,000 per day, i.e., pays 10,000, 20,000, 30,000, 40,000, 50,000, if r 1, 2, 3, 4, 5, respectively. Find the expected amount paid by the insurance company.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter17: Making Decisions With Uncertainty

Section: Chapter Questions

Problem 7MC

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Solve the following problem using an excel spreadsheet. A tobacco company isinterested in hiring a salesperson to promote smoking cigarettes in nightclubs. The position pays a flat salary of $50,000, regardless of sales levels. The firm has two applicants, Predictable Patty and Risky Ricky. Predictable Patty can produce with 100% certainty $100,000 a year in sales. Risky Ricky, on the other hand, can produce $300,000 with probability of 50%. But if he turns out to spend his time drinking and dancing in the nightclubs instead of making sales, he could actually cost the firm -$100,000 per year.a) During their first year on the job, what are the expected sales of Patty and Ricky? What are the firm’s expected profits on each worker?b) Now assume both workers are currently 25, and they will work until the retirement age of 65. The firm has the option to fire its new employee after one year based on sales, but can only hire one employee. Assume that it takes only one year to discover whether…
Consider a city where everyone commutes to the city center, and the commuting cost per mile per month is $50. Each household occupies a 1,500-square-foot dwelling and has $10,000 worth of possessions in its dwelling. The probability that any particular household will be burglarized and lose all its possessions (no insurance) is 0.2 (per month) at the city center and decreases by 0.01 per mile (to 0.19 at one mile, 0.18 at two miles, and so on). The price of housing is $2 per square foot at the city center. 1. Starting from the center, a one-mile move outward changes the expected value of the loss from crime from_______ to _______, a change of _________ per square foot. 2. The slope of the housing-price curve is _________, computed as __________ 3. Draw the housing-price curve for locations up to five miles from the city center. The price changes from ________ at the city center to _________ five miles away.
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