​Use the Following Setup for Question

question 20

Multiple Choice

​Use the following setup for question
Both Nadia and Samantha are applying to insure their car against theft.Nadia lives in a secure neighborhood,where the probability of theft is 10%.Samantha lives in a lesser secure neighborhood where the probability of theft is 25%.Both Nadia and Samantha own cars worth $10,000,and are willing to pay $100 over expected loss for insurance.
-​Suppose the insurance company cannot tell them apart but expects them to be different values and charges them an average premium of $1850. How much profit would it make?

• A)​$1850
• B)Zero-they would break even
• C)They would make a loss of $650
• D)​They would make a loss of $1100

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Definitions:

Expected-rate-of-return

The profit or loss one anticipates on an investment relative to the amount of money invested.

Optimal R&D

The ideal level of spending on research and development that maximizes an organization's returns or benefits.

Oligopolists

Firms or entities that operate in an oligopoly, a market structure characterized by a small number of sellers that dominate the market.

R&D

Stands for Research and Development, which refers to investigative activities a business conducts to improve existing products and procedures or to lead to the development of new products and procedures.