A) Outline the Principal Differences Between the Measures of Speculative

question 22

Essay

a) Outline the principal differences between the measures of speculative risk and pure risk.
b) Justify which of the above measures is more commonly associated with policies of insurance.

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Definitions:

Diminishing Marginal Product

A principle stating that as more of a variable input is added to a fixed input, the additional output produced from each additional unit of the variable input eventually decreases.

Marginal Costs

The supplementary cost arising from the manufacture of an extra unit of a good or service.

Variable Inputs

Inputs that can be adjusted in the short term to alter the level of output in the production process.

Marginal Cost Function

A mathematical representation showing how the cost of producing one additional unit of a good changes as production volume changes.