A Farmer Lives on a Flat Plain Next to a River

question 147

Multiple Choice

A farmer lives on a flat plain next to a river. In addition to the farm, which is worth $F, the farmer owns financial assets worth $A. The river bursts its banks and floods the plain with probability P, destroying the farm. If the farmer is risk averse, then the willingness to pay for flood insurance unambiguously falls when:

• A) F is higher, and A is lower.
• B) P is lower, and F is higher.
• C) F & A are higher.
• D) P is lower, and A is lower.
• E) A is higher, and F is lower.

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Definitions:

Constrained Resource

A limited resource in a production process that restricts the company's ability to meet demand, influencing the maximum output.

Constrained Resource

A limited capacity resource that restricts an organization's ability to meet production demands or goals.

Financial Advantage

The benefit or upper hand that a business or individual gains by optimizing financial decisions and resource allocations to enhance wealth or profitability.

Profitable Product

A product that generates more revenue than the costs associated with producing and selling it.