A construction company needs to move lumber onto the roof of a building. If the lumber falls and hits someone it will cause $1,200,000 in damage. Assume that company must choose between the following levels of precaution: Spend $500 and the probability of an accident is .05 Spend $5,000 and the probability of an accident is .01 Spend $8,000 and the probability of an accident is .008 Spend $10,000 and the probability of an accident is .003 If the construction company is strictly liable for the costs of the accident, how much would they spend on precaution? A. $500 B. $5,000 C. $8,000 D. $10,000
A construction company needs to move lumber onto the roof of a building. If the lumber falls and hits someone it will cause $1,200,000 in damage. Assume that company must choose between the following levels of precaution: Spend $500 and the probability of an accident is .05 Spend $5,000 and the probability of an accident is .01 Spend $8,000 and the probability of an accident is .008 Spend $10,000 and the probability of an accident is .003 If the construction company is strictly liable for the costs of the accident, how much would they spend on precaution? A. $500 B. $5,000 C. $8,000 D. $10,000
Chapter7: Uncertainty
Section: Chapter Questions
Problem 7.8P
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A construction company needs to move lumber onto the roof of a building. If the lumber falls and hits someone it will cause $1,200,000 in damage. Assume that company must choose between the following levels of precaution:
-
Spend $500 and the probability of an accident is .05
-
Spend $5,000 and the probability of an accident is .01
-
Spend $8,000 and the probability of an accident is .008
-
Spend $10,000 and the probability of an accident is .003
If the construction company is strictly liable for the costs of the accident, how much would they spend on precaution?
A. $500
B. $5,000
C. $8,000
D. $10,000
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