Suppose Firm ABC is selling health insurance for 5 year periods. The insurance covers the costs of medical treatment which happens with probability 0.05, half of the costs of medical examination which happens with probability 0.15 and 25% of costs of surgery which happens with probability 0.01 in one year. Medical examination costs 10000 dollars, medical treatment costs 20000 dollars and surgery costs 100000 dollars on average. a. Calculate the expected payment of the company for the next five years. b. What is the actuarily fair premium per person if Firm ABC has 400 customers?
Suppose Firm ABC is selling health insurance for 5 year periods. The insurance covers the costs of medical treatment which happens with probability 0.05, half of the costs of medical examination which happens with probability 0.15 and 25% of costs of surgery which happens with probability 0.01 in one year. Medical examination costs 10000 dollars, medical treatment costs 20000 dollars and surgery costs 100000 dollars on average. a. Calculate the expected payment of the company for the next five years. b. What is the actuarily fair premium per person if Firm ABC has 400 customers?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Note:-
- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism.
- Answer completely.
- You will get up vote for sure.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps with 8 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education