Ask Question, Ask an Expert

+61-413 786 465

info@mywordsolution.com

Ask Microeconomics Expert

Economics


Home >> Microeconomics

Chen's car is worth $5,000. But she is sometimes careless and leaves the door open and the keys in the ignition. Consequently her car will be stolen with probability 0.4. If it is stolen, she will never get it back. Chen also has $5,000 in the bank and her utility function for wealth is u(w) = ln(w).

(a) If Chen does not buy any insurance for her car, what is the expected monetary value of her wealth?

(b) What's her expected utility of having a car without insurance?

(c) What would be the price of a "Fair" full insurance plan? Would Chen buy full insurance for her car at this price?

(d) Suppose the insurance company knows Chen's preferences. What's the highest price the insurance company can charge Chen? Is Chen better-off at this new price than she is without full insurance?

(e) The insurance company is thinking about offering a partial insurance to Chen. Under this insurance option, the insurance company would charge Chen a premium of $1000, but it will cover only 50% of the value of the car ($2500) in case it is stolen. Will Chen prefer this insurance over the plan offered in part (d)? Will the insurance company make more profits under this contract?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M9745393

Have any Question?


Related Questions in Microeconomics

Question would you agree or disagree with the following

Question: Would you agree or disagree with the following statement, "The single most important health policy choice in the United States over the past four decades has nothing to do with the Department of Health and Huma ...

Question youve invested 10000 in a portable bratwurst stand

Question: You've invested $10,000 in a portable bratwurst stand, giving up the 8% rate of return you could have earned had you invested that money elsewhere. Last year you sold 1600 brats at $3 each; the meat, buns, and ...

Question four students from your economics class are

Question: Four students from your economics class are sitting in a local restaurant discussing the market for coffee. Below are quotes from each of the four students. All of the following quotes are logically correct exc ...

Question - based on the harvard business review article

Question - Based on the Harvard business review article titled - A Payment Model That Prevents Unnecessary Medical Treatment answer the following questions: You are 64 years old and have been diagnosed with advanced arth ...

Question southern california edisons prices service quality

Question: Southern California Edison's prices, service quality, and investments in new facilities are pervasively regulated by governments under long-standing rules. Do you expect that a given decision will be made at a ...

Question in footnote 7 we suggested that if transaction

Question: In footnote 7 we suggested that if transaction costs are too high, a government subsidy to beekeepers might produce an efficient solution to the external benefit problem. Explain why. The response must be typed ...

Question is a tax on margarine efficient in the economic

Question: Is a tax on margarine efficient in the economic sense of the term? Why would margarine producers prefer to have an excise tax impose on both butter and margarine? Would such a tax be more or less efficient than ...

Question if we plot michelles gpa as a function of her

Question: If we plot Michelle's GPA as a function of her leisure time, we see that her GPA ?rst rises with leisure (taking some time o? improves her performance) but eventually decreases with leisure. 1. Plot the relatio ...

Assignment pay discriminationwhy do women earn less than

Assignment: Pay Discrimination Why do women earn less than men? In this assignment you will look at the data on women's and men's pay, and explore reasons for the pay differential. Respond to the 3 key questions below. W ...

Question suppose the value of the japanese yen rises 20 but

Question: Suppose the value of the Japanese yen rises 20%, but in order to maintain market share in the US, major Japanese companies decide not to raise the prices. As a result, their imports do not change, but profits o ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As

Follow Us

© Copyright 2013-14 mywordsolution.com All rights reserved