Burger Prince Restaurant Is Considering the Purchase of a $100,000

question 66

Essay

Burger Prince Restaurant is considering the purchase of a $100,000 fire insurance policy.The fire statistics indicate that in a given year the probability of property damage in a fire is as follows: $$\begin{array} { l c c c c c c } \text { Fire Damage } & \$ 100,000 & \$ 75,000 & \$ 50,000 & \$ 25,000 & \$ 10,000 & \$ 0 \\\hline \text { Probability } & .006 & .002 & .004 & .003 & .005 & .980\end{array}$$
a.If Burger Prince was risk neutral, how much would they be willing to pay for fire insurance?
b.If Burger Prince has the utility values given below, approximately how much would they be willing to pay for fire insurance? $$\begin{array} { l c c c c c c c } \text { Loss } & \$ 100,000 & \$ 75,000 & \$ 50,000 & \$ 25,000 & \$ 10,000 & \$ 5,000 & \$ 0 \\\hline \text { Utility } & 0 & 30 & 60 & 85 & 95 & 99 & 100\end{array}$$

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Definitions:

University

An institution of higher education and research, which awards academic degrees in various academic disciplines.

Weight Loss Centre

A facility dedicated to helping individuals achieve and maintain a healthy weight through diet, exercise, and other lifestyle changes.

Weight Loss Strategy

A plan of action designed to help individuals reduce their body weight, often involving diet, exercise, and lifestyle changes.

Null Hypotheses

A default hypothesis that there is no significant difference or effect, typically set as the assumption to be tested in statistical hypothesis testing.