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 likely: negative positive zero

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 likely: negative positive zero

EBK HEALTH ECONOMICS AND POLICY

7th Edition

ISBN:9781337668279

Author:Henderson

Publisher:Henderson

Chapter4: Economic Evaluation In Health Care

Section: Chapter Questions

Problem 4QAP

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Question

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 likely:

negative

positive

zero

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