Use the Following to Answer Question

question 74

Multiple Choice

Use the following to answer question:
-(Scenario: Choosing Insurance) Use Scenario: Choosing Insurance.For $1,000,the Ramirez family can buy insurance that will cover the full cost of repairs.If family members are risk-averse and want to maximize their expected utility,they will: Scenario: Choosing Insurance
The Ramirez family owns three cars and is considering buying insurance to cover the cost of repairs.They face two possible states: in state 1,their cars need no repairs and their income available for purchasing other goods and services is $50,000;in state 2,their cars need $10,000 worth of repairs and their income available for purchasing other goods and services is reduced to $40,000.The probability of repairs is 10%,while the probability of no repairs is 90%.

• A)buy the insurance.
• B)be indifferent between buying and not buying the insurance since their expected income for purchasing other goods and services is $49,000,regardless of what they do.
• C)buy the insurance as long as the utility of having a certain income of $48,000 to buy goods and services other than car repairs is higher than the utility associated with their expected income without insurance.
• D)self-insure.

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Definitions:

Rotors

The rotating part of an electrical machine such as a motor or generator, which turns around an axis.

Electric Motor

A machine that converts electrical energy into mechanical energy, used in countless applications from household appliances to industrial machines.

Mechanical Energy

The energy possessed by an object due to its motion or position, capable of producing mechanical work.

Electrical Energy

The form of energy resulting from the flow of electric charge, widely used for domestic, commercial, and industrial applications.