-Andrew Has the Utility of Wealth Curve Shown in the Above

question 17

Multiple Choice

-Andrew has the utility of wealth curve shown in the above figure. He owns an SUV worth $30,000 and that is his only wealth. There is a 10 percent chance that he will have an accident within a year. If he does have an accident, his SUV is worthless. Suppose all SUV owners are like Andrew. An insurance company agrees to pay each person who has an accident the full value of his/her SUV. The company's operating expenses are $1,500. What is the minimum insurance premium that the company is willing to accept?

• A) $1,500 per year
• B) $4,500 per year
• C) $3,000 per year
• D) $6,000 per year

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Definitions:

Automatic Processing

The unconscious encoding of incidental information and well-learned tasks, requiring little to no cognitive effort.

Source Amnesia

A memory disorder where an individual can recall certain information but is unable to remember where, when, or how the information was acquired.

Voicers

Individuals who express opinions, concerns, or suggestions for improvements within an organization.

Silent

Without sound; not speaking or refraining from speech.