Answered: 4. Give one reason why it may make more…

4. Give one reason why it may make more sense to use expected net benefits to incorporate risk in a national cost-benefit analysis than it would for an individual to think about risk in this way.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Give one reason why it may make more sense to use expected net benefits to incorporate risk
in a national cost-benefit analysis than it would for an individual to think about risk in this way.

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Please answer both parts I do not understand, thank you :) Part A. Suppose that the rats on the campus of Hypothetical U are found to be carriers of a plague. Eradicating the rats has an estimated cost of $1,000,000 and is expected to reduce the probability a given student dies of the plague from 1/2,000 to zero. Suppose that there are 30,000 students on campus. Suppose further that the administration refuses to eradicate the rats due to the cost. From this information, we can estimate that the administration’s willingness to pay to save a student statistical life is less than $1,000,000 $33,333.3 $100,000 $66,666.7 Part B: Suppose a company offers a standard insurance contract with a premium (r) of $1,000 and a payout (q) of $8,000. Suppose that Rock earns a healthy state income of $50,000, a sick state income of $20,000, and has a 10% chance of becoming ill. From this information, you can determine that the expected profit for the insurance company is…
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