Suppose the Ajax Insurance Company Provides Insurance for Skydivers Whose

question 2

Multiple Choice

Suppose the Ajax Insurance Company provides insurance for skydivers whose wealth before diving is $400.An accident will leave divers with a wealth of $100.The company divides the divers into two classes: safe (probability of an accident = 0.2) and unsafe (probability of an accident = 0.5) .The utility of wealth for all divers is given by the function: U(w) = w^0.5.The utility of no insurance for the safe diver is:

• A) 15.
• B) 17.3.
• C) 18.
• D) 18.3.
• E) none of the above.

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Definitions:

Marginal Revenue

The rise in income generated by selling an additional unit of a product or service.

Marginal Revenue

The rise in income generated by selling one more unit of a product or service.

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that good, reflecting consumers' sensitivity to price changes.