Consider the setup from Questions 1 and 2. How much profits, in expectation, does the insurance company earn on insuring the individual? a. £5 000 O b. £10000 £20 000 O d. £0
Consider the setup from Questions 1 and 2. How much profits, in expectation, does the insurance company earn on insuring the individual? a. £5 000 O b. £10000 £20 000 O d. £0
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Setup from Question 1) An expected utility maximiser owns a car worth £60000 and has a bank account with £20000. The money in the bank is safe, but there is a 50% probability that the car will be stolen. The utility of wealth for the agent is u(y)=ln(y) and they have no other assets.
Setup from question 2)Consider the setup from Question 1. A risk-neutral insurance company is willing to insure the car at the premium of π=£2/3 for every one pound of coverage.
Question 3:
![Consider the setup from Questions l and 2. How much profits, in expectation, does the insurance company earn on insuring
the individual?
O a. £5 000
O b. £10000
O c. £20000
O d. £0](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F9327414c-afc8-41e4-8a93-f2b6b7bc039a%2F3aa3aa7a-dc9f-4c32-b97e-4c8fa1d7c328%2F8l21b4d_processed.png&w=3840&q=75)
Transcribed Image Text:Consider the setup from Questions l and 2. How much profits, in expectation, does the insurance company earn on insuring
the individual?
O a. £5 000
O b. £10000
O c. £20000
O d. £0
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