Scenario 17.3 Consider the Following Information

question 87

Multiple Choice

Scenario 17.3
Consider the following information:
The probability of a fire in a factory without a fire prevention program is 0.01. The probability of a fire in a factory with a fire protection program is 0.001. If a fire occurred, the value of the loss would be $300,000. A fire prevention program would cost $80 to run.
-Refer to Scenario 17.3. If the fire protection program were in place, the company could insure the warehouse for a premium equal to:

• A) the loss from the fire, $300,000.
• B) the expected loss from the fire, $300.
• C) the expected loss from the fire, $3,000.
• D) the cost of the fire protection program, $80.
• E) $0.

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Definitions:

Sample Mean

The arithmetic average of a set of sample values, used as an estimate of the population mean.

Population Mean

The average value of a characteristic in the entire population of interest.

Unbiased Estimator

A statistic used to estimate a population parameter that is expected to be equal to the true parameter value on average.

Larger Sample Sizes

Referring to the use of a greater number of observations in a study, which can enhance the reliability and precision of statistical estimates.