Bikul Has Just Started a Great Job and Plans to Buy

question 16

Multiple Choice

Bikul has just started a great job and plans to buy a fancy car worth $100,000.Bikul is risk-averse, but he likes to drive fast, so the probability that he wrecks and totals the car (a total loss of $100,000) is 0.10.The probability that he has no accidents is 0.90.If an insurance company were to offer Bikul a fair insurance policy, the premium would be equal to:

• A)$10,000.
• B)$90,000.
• C)$80,000.
• D)It is impossible to calculate a premium unless we know Bikul's utility function.

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Definitions:

Production Function

A mathematical representation that describes the relationship between inputs and the maximum output of a product.

Price Of Factor

The cost associated with a factor of production, such as labor or capital, used in the creation of goods or services.

Output Supply

The total amount of a product or service that is available for purchase at any given price level in a given market.

Long-Run Cost Function

A concept that describes how the total production costs of a firm change based on output levels, considering all inputs as variable in the long term.