Question

In: Economics

Suppose Mr. Lin would like to some insurance for his property. The value of property is...

Suppose Mr. Lin would like to some insurance for his property. The value of property is one 100000 $. The probability of having fire is 0.01, which may totally destroy the value. Mr. Lin can hire an agent to take care of his property and entirely remove the risk, with the cost of 0.5% of the value of property.

a). (10 points) If Mr. Lin does not have any insurance for his property, does he want to hire an agent to take care of his property?

b). (10 points) Now suppose an insurance company offers a full insurance with premium 2000 $ to Mr. Lin. Does he want to buy the insurance before he hires the agent?

c). (5 points) If Mr. Lin bargains with insurance company and the insurance premium now is 100 $. After his purchase of insurance, does he want to hire the agent?

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Expert Solution

Rahul Sunny answered 1 year ago
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