Statistical Techniques in Business and Economics
18th Edition
ISBN: 9781260788785
Author: Lind, Douglas
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 20, Problem 4E
To determine
Construct an opportunity loss table.
Find the opportunity loss for each decision.
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please show all your steps (including decision trees)
Avicenna, an insurance company, offers five-year commercial property insurance policies to small businesses. If the holder of one of these policies experiences
property damage in the next five years, the company must pay out $23,600 to the policy holder. Executives at Avicenna are considering offering these policies
for $791 each. Suppose that for each holder of a policy there is a 3% chance they will experience property damage in the next five years and a 97% chance
they will not.
(If necessary, consult a list of formulas.)
If the executives at Avicenna know that they will sell many of these policies, should they expect
to make or lose money from offering them? How much?
To answer, take into account the price of the policy and the expected value of the amount paid
out to the holder.
O Avicenna can expect to make money from offering these policies.
In the long run, they should expect to make
dollars on each policy sold.
O Avicenna can expect to lose money from offering these policies.…
Avicenna, an insurance company, offers five-year commercial property insurance policies to small businesses. If the holder of one of these policies experiences property damage in the next five years, the company must pay out
$26,500
to the policy holder. Executives at Avicenna are considering offering these policies for
$497
each. Suppose that for each holder of a policy there is a
2%
chance they will experience property damage in the next five years and a
98%
chance they will not.(If necessary, consult a list of formulas.)
If the executives at Avicenna know that they will sell many of these policies, should they expect to make or lose money from offering them? How much?
To answer, take into account the price of the policy and the expected value of the amount paid out to the holder.
Avicenna can expect to make money from offering these policies.
In the long run, they should expect to makedollars on each policy sold.
Avicenna can…
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Statistical Techniques in Business and Economics
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