You Do Some Research and Find for a Driver of Your

question 40

Essay

You do some research and find for a driver of your age and gender the probability of having an accident that results in damage to your automobile exceeding $100 is 1/10 per year.Your auto insurance company will reduce your annual premium by $40 if you will increase your collision deductible from $100 to $250.Should you? Explain.
E.L.= 0.1($150) + 0.9($0) = $15.00.Since this expected loss is less than the $40 in premium savings it makes good sense to increase the deductible.

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Definitions:

Long-Run Average Cost

The average cost per unit of output where all inputs, including capital, are variable over time, reflecting economies or diseconomies of scale.

Plant Size

The capacity or physical extent of a manufacturing facility, which influences its production capabilities, economies of scale, and operational efficiency.

ATC

ATC, or Average Total Cost, is the per-unit cost of production, calculated by dividing the total cost by the quantity of output produced, comprising both fixed and variable costs.

Marginal Cost

The cost of producing one additional unit of a good or service, considered crucial in determining production levels and pricing decisions.