A Do-It-Yourself Homeowner Is Installing a New Toilet

question 38

Essay

A do-it-yourself homeowner is installing a new toilet. While installing the toilet he must decide on what kind of connecting pipe he will install to the water supply. There are two available options, one that has a shut-off valve in case of a leak and a cheaper one without the shut-off valve. Suppose that the shut-off valve pipe costs an extra ten dollars and that the homeowner must buy one of the two.
(a) Draw a decision tree for this scenario, labeling the cost of a leak as X and the chance of a leak as P.
(b) If the chance of a leak causing household damage is 1%, at what $ amount of household damage is the owner neutral on which pipe to buy?
(c) If the cost of a leak would be $10,000 what is the maximum % chance to leak at which the homeowner would prefer to buy the cheaper pipe?
(d) If the cost of a leak is $1,000 and the chance to flood .1% which pipe should the homeowner buy?

---

Definitions:

LLC

Limited Liability Company; a business structure in the United States that provides the owners with limited liability protection, while offering the tax benefits of a partnership.

Register

To record or enroll formally, especially in a list, database, or book, or the part of the brain that deals with speech and language processing.

Paperwork

Generally involves the handling, processing, or managing of documents and forms required in the administration of business, legal, or other official activities.

Ownership Transferable

A characteristic of property rights or shares that allows them to be passed from one individual or entity to another.