Scenario 17.3 Consider the Following Information

question 1

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. Moral hazard arises in this situation because once the firm:

• A) pays the premium that is based on the 0.001 probability, it has no incentive to spend the additional $80 for the fire protection program, so the true probability of loss is no longer 0.001.
• B) pays the premium that is based on the 0.01 probability, it has no incentive to spend the additional $80 for the fire protection program, so the true probability of loss is no longer 0.01.
• C) puts the fire protection program in place, it has less incentive to spend $300 for a premium, leaving the firm underinsured.
• D) puts the fire protection program in place, it has less incentive to spend $6,000 for a premium, leaving the firm underinsured.
• E) puts the fire protection program in place, it will consider that a substitute for insurance and not be able to deal with the loss from a fire should it occur.

---

Definitions:

Needs To Be Turned

Refers to the necessity for periodic repositioning of a patient or object, often to prevent pressure sores or for comfort.

Intermediate Priority

A classification of tasks or needs that are important but not urgent, falling between high and low priority in terms of immediacy.

Needs Teaching

A determination that a patient requires additional information or instruction to understand their health condition, treatment, or care requirements.

Prevent Pneumonia

Strategies or interventions aimed at reducing the risk of developing pneumonia, a lung infection.