1als toy store faces the following probability distribution, Ask an Expert

Economics

1. Al's Toy Store faces the following probability distribution of fire losses in its store over the next year:

Probability .85 .10 .05

Loss $0 $20,000 $40,000

(1) Calculate the expected value and standard deviation of Al's losses for the year.

(2) Assume that Al pools his losses with Ed's store, which has an identical loss distribution. Ed's losses are independent of Al's. Al and Ed agree to split the total losses in the pool equally. Show the revised probability distribution for the mean loss from the pool.

(3) Calculate the expected value and standard deviation of the pooled mean losses.

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Microeconomics, Economics

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