-Steve Owns a Motorcycle Valued at $5,000, and That Is

question 61

Multiple Choice

-Steve owns a motorcycle valued at $5,000, and that is his only asset. There is a 5 percent chance that Steve will have an accident within a year. If he does have an accident, his motorcycle is worthless. Steve's utility of wealth curve is shown in the figure above. An insurance company agrees to pay Steve the full value of his motorcycle in case of an accident if he buys the company's insurance policy. The company's operating expenses are $500 per policy. With no insurance, Steve's expected utility is

• A) 97.
• B) 84.
• C) 90.
• D) 100.

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Definitions:

Optimal Labor Employment

The most efficient level of labor usage where the additional cost of employing one more worker equals the additional revenue generated.

Sewing Machines

Mechanical or electronic devices used to stitch fabric and other materials together with thread.

Marginal Product

The additional output that is produced by using one more unit of a particular input, holding other inputs constant.

Optimal Labor Employment

The most efficient and effective level of staffing for a business or organization to maximize productivity and minimize costs.