Question
In: Economics
There are two types of ladders on the market that can be used for painting: Safe...
- There are two types of ladders on the market that can be used for painting: Safe ladders which cost $6 and Risky ladders which cost $4. The probability of falling (accidently) off the Safe ladder is 0.10 and the probability of falling off the risky ladder is 0.40. If the painter does not fall then the income (I) from painting is $20, if the painter falls then income is $12. Lower income might be because the painter can’t work the next day because of injury. The painter’s utility function is√?.
- Which ladder will be purchased when the painter has no insurance against an accident?
- Now assume that the painter can buy insurance for $2 which provides the painter with an income of $20 no matter what happens. Which ladder will be purchased?
- Assume that the insurance company can identify Risky ladders and Safe ladders. If the insurance company sets a price of $2 for Safe ladders, what price would it have to charge on Risky ladders to get painters to buy Safe ladders?
Solutions
Rahul Sunny answered 2 years agoRelated Solutions
Consider a simplified market for the used 2015 Nissan Sentra. There are only two types of...
Consider a simplified market for the used 2015 Nissan Sentra.
There are only two types of cars: great condition and poor
condition. Suppose the less-informed buyers have no way of
observing pertinent information at all about the quality of a car.
Suppose each owner of a ‘great condition’ car values the car at
$10,000 and each owner of a ‘poor condition’ car values the car at
$5,000. Suppose buyers are willing to pay $12,000 for a ‘great
condition’ Sentra and...
LOAN COMMITMENTS. Chara&McAvoy Inc., can choose one of two projects: safe and risky. The safe project...
LOAN COMMITMENTS. Chara&McAvoy Inc., can choose one of two
projects: safe and risky. The safe project yields $139 with
probability .95 and zero with probability .05, whereas the risky
project yields $160 with probability .60 and zero with probability
.40. Each project requires an investment of $100, which
Chara&McAvoy must borrow. The bank can make only an unsecured
loan, and cannot observe the firm’s choice of project. Everyone is
risk neutral, and the risk-free rate is zero.
Now suppose the...
Suppose there are only two types of cars in the used car market q=0 and q=1....
Suppose there are only two types of cars in the used car market
q=0 and q=1. Half the cars are q=0 and the other half are q=1.
Buyers still cannot tell the quality but they are aware of the
quality distribution. Sellers are willing to accept any price p
>0, but prefer to receive a higher price. If buyers do not know
q, then they are willing to pay p=10000*Q+500 where Q is the
average quality of the cars in...
Suppose there are only two types of cars in the used car market q=0 and q=1....
Suppose there are only two types of cars in the used car
market q=0 and q=1.
Half the cars are q=0 and the other half are
q=1.
Buyers still cannot tell the quality but they are aware
of the quality distribution.
Sellers are willing to accept any price p≥0, but prefer
to receive a higher price.
If buyers do not know q, then they are willing to pay
p=10000*Q+500
where Q is the average quality of the cars in the...
Describe two types of pure risk for which the technique of risk pooling can be used...
Describe two types of pure risk for which the technique of risk
pooling can be used to reduce risk effectively, as well as two
types of pure risk in which the technique cannot be used
effectively. In your answer, briefly describe the characteristics
of the pure risks that make them well (or poorly) suited for the
risk reduction through pooling. POST ON CHEGG ALREADY IS
INCORRECT***
Why do externalities cause market failure? What types of government actions or regulations can be used...
Why do externalities cause market failure? What types of
government actions or regulations can be used to correct
externalities? How do they work?
What is an example of a negative externality and discuss how the
government can fix it?
What is an example of a positive externalities and discuss how
the government addresses it?
Do you agree with the way in which externalities are
corrected?
Discuss the types of controls that can be used in organizations.
Discuss the types of controls that can be used in
organizations.
A sleeve coupling is used to connect two 50 mm shafts whose safe shearing stress is...
A sleeve coupling is used to connect two 50 mm shafts whose safe
shearing stress is 70 MPa. Design the sleeve when it is made of
cast iron with an ultimate shearing stress of 140 MPa. Also
determine the factor of safety for which the sleeve has been
designed. The length of the key is half the length of sleeve and
the section of the key is 12.5 mm x 12.5 mm, find the shearing and
crushing stresses induced in...
What are the different types of derivative securities and how are they used in the market?
What are the different types of derivative securities and how are
they used in the market?
We discussed four types of market failures in class. List two types of market failures, give...
We discussed four types of market failures in class. List two
types of market failures, give an example of market or type of
product for which this failure is likely to exist, give an example
of a solution, and state whether it is an incentive compatible
approach or a command-and-control approach.
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- A)Given a generic array with ‘n’ items (not only integers). Give a solution for checking whether...
- Explain virtualization as a key technology in cloud computing environments, as well as the purpose of...
- A system is set up to take raw grading information from the console and calculate a...
- I have an 8 by 8 array that has values ranging from 1-64. I am wanting...
- The background information and instruction of the question is provided below, and i only asked for...
- Which business or industry sectors have the most startups companies that consider a small and medium...
- 16. Cost of trade credit Firms usually offer their customers some form of trade credit. This...
ADVERTISEMENT