Question
In: Economics
A firm wants to purchase fire insurance for its main factory. The probability of a fire...
-
A firm wants to purchase fire insurance for its main factory. The probability of a fire in the factory without a fire-prevention program is 0.01; with a fire-prevention program the probability of a fire drops to 0.001. The fire-prevention programs costs $80 to run and a fire would result in a loss of $300,000. Suppose the firm is risk- neutral and the insurance company cannot observe whether or not it has implemented the fire-prevention program.
-
Would the firm implement the fire-prevention program if insurance was unavail- able? Explain.
-
How much would the firm be willing to pay to fully insure against the fire loss? Explain. Note: full insurance means that, in case of a fire, $300,000 is remitted to the firm.
-
Solutions
Expert Solution
_________________________________________________________________________________________________
________________________________________________________________________________________________
Rahul Sunny answered 2 years agoRelated Solutions
The City Fire Department currently owns 7 fire engines and wants to purchase an additional fire...
The City Fire Department currently owns 7 fire engines and wants
to purchase an additional fire engine. In order to evaluate this
request, the City Council gathers data on vehicles for Fire
Departments in cities that are similar in key attributes
(population size, land area, tax bases, etc.) These data are
presented below. Should the City Council approve the Department’s
request to purchase an additional fire engine? (Use any method of
analysis that you find helpful and explain your answer...
A fire insurance company wants to estimate the amount of fire damage in major residential fires...
A fire insurance company wants to estimate the amount of fire
damage in major residential fires based on distance between the
residence and the nearest fire station. The study is to be
conducted in a large suburb of a major city, a sample of 16 recent
fires in this suburb is selected.
–Explanatory Variable (x): Distance
–Response Variable (y): Damage
Give a 95% Confidence Interval for slope.
( , )
Neighborhood Insurance sells fire insurance policies to local homeowners. The premium is $110, the probability of...
Neighborhood Insurance sells fire insurance policies to local
homeowners. The premium is $110, the probability of a fire is 0.1%,
and in the event of a fire, the insured damages (the payout on the
policy) will be $100,000.
a. Make a table of the two possible payouts on
each policy with the probability of each.
Outcome
A: No Fire
Outcome
B: Fire!
Payout
c. Now suppose your company issues two
policies. The risk of fire is independent across the two...
Neighborhood Insurance sells fire insurance policies to local homeowners. The premium is $150, the probability of...
Neighborhood Insurance sells fire insurance policies to local
homeowners. The premium is $150, the probability of a fire is 0.1%,
and in the event of a fire, the insured damages (the payout on the
policy) will be $140,000.
a. Make a table of the two possible payouts on
each policy with the probability of each.
b. Suppose you own the entire firm, and the
company issues only one policy. What are the expected value,
variance and standard deviation of your...
Neighborhood Insurance sells fire insurance policies to local homeowners. The premium is $240, the probability of...
Neighborhood Insurance sells fire insurance policies to local
homeowners. The premium is $240, the probability of a fire is 0.1%,
and in the event of a fire, the insured damages (the payout on the
policy) will be $230,000.
a. Make a table of the two possible payouts on each policy with
the probability of each.
b. Suppose you own the entire firm, and the company issues only
one policy. What are the expected value, variance and standard
deviation of your...
Waterbury Insurance Company wants to study the relationshipbetween the amount of fire damage and the...
Waterbury Insurance Company wants to study the relationship
between the amount of fire damage and the distance between the
burning house and the nearest fire station. This information will
be used in setting rates for insurance coverage. For a sample of 30
claims for the last year, the director of the actuarial department
determined the distance from the fire station (x) and the
amount of fire damage, in thousands of dollars (y). The
MegaStat output is reported below.ANOVA tableSourceSSdfMSFRegression1,864.578211,864.578238.83Residual1,344.49342848.0176Total3,209.071629Regression outputVariablesCoefficientsStd....
Waterbury Insurance Company wants to study the relationship between the amount of fire damage and the...
Waterbury Insurance Company wants to study the relationship
between the amount of fire damage and the distance between the
burning house and the nearest fire station. This information will
be used in setting rates for insurance coverage. For a sample of 30
claims for the last year, the director of the actuarial department
determined the distance from the fire station (x) and the amount of
fire damage, in thousands of dollars (y). The MegaStat output is
reported below.
ANOVA table...
Waterbury Insurance Company wants to study the relationship between the amount of fire damage and the...
Waterbury Insurance Company wants to study the relationship
between the amount of fire damage and the distance between the
burning house and the nearest fire station. This information will
be used in setting rates for insurance coverage. For a sample of 30
claims for the last year, the director of the actuarial department
determined the distance from the fire station (x) and the amount of
fire damage, in thousands of dollars (y). The MegaStat output is
reported below. ANOVA table...
Waterbury Insurance Company wants to study the relationship between the amount of fire damage and the...
Waterbury Insurance Company wants to study the relationship
between the amount of fire damage and the distance between the
burning house and the nearest fire station. This information will
be used in setting rates for insurance coverage. For a sample of 30
claims for the last year, the director of the actuarial department
determined the distance from the fire station (x) and the
amount of fire damage, in thousands of dollars (y). The
MegaStat output is reported below.
ANOVA table...
Waterbury Insurance Company wants to study the relationship between the amount of fire damage and the...
Waterbury Insurance Company wants to study the relationship
between the amount of fire damage and the distance between the
burning house and the nearest fire station. This information will
be used in setting rates for insurance coverage. For a sample of 30
claims for the last year, the director of the actuarial department
determined the distance from the fire station (X) and the
amount of fire damage, in thousands of dollars (Y). The
MegaStat output is reported below.
ANOVA table...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Enumerations Create an advanced enumeration to represent months (JANUARY – DECEMBER) called enuMonths Add internal properties...
- What is the minimum size of the automorphism group of a simple directed graph having more...
- The birthday paradox says that the probability (chance) that two people in a room will have...
- #include <iostream> #include "lib.hpp" using namespace std; int main() { // declare the bool bool...
- Why do we compare means instead of individual scores? for comparing average SAT test scores across...
- NPV Your division is considering two projects with the following cash flows (in millions): 0...
- The equivalent synchronous impedance of a 25kVA, 400V three-phase Y-connected synchronous generator is 0.05 + j1.6...
ADVERTISEMENT