Suppose every driver faces a 1.5% probability of an automobile accident every year, and on an average an accident will cost each driver $10,000. Suppose there are two types of individuals: those with $50,000 and those with $6,000 in the bank. Assume that individuals with $6,000 in the bank declare bankruptcy if they get in an accident. In the bankruptcy, creditors receive only what individuals have in the bank. What is the expected loss from an accident for individuals with $6,000 in the bank if they don’t buy comprehensive insurance coverage? a. $50,000.00 b. $6,000.00 c. $150.00 d. $90.00

Suppose every driver faces a 1.5% probability of an automobile accident every year, and on an average an accident will cost each driver $10,000. Suppose there are two types of individuals: those with $50,000 and those with $6,000 in the bank. Assume that individuals with $6,000 in the bank declare bankruptcy if they get in an accident. In the bankruptcy, creditors receive only what individuals have in the bank. What is the expected loss from an accident for individuals with $6,000 in the bank if they don’t buy comprehensive insurance coverage? a. $50,000.00 b. $6,000.00 c. $150.00 d. $90.00

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.3P

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