An Insurance Policy Costs $150 Per Year,and Will Pay Policyholders

question 47

Multiple Choice

An insurance policy costs $150 per year,and will pay policyholders $16,000 if they suffer a major injury (resulting in hospitalization) or $6000 if they suffer a minor injury (resulting in lost time from work) .The company estimates that each year 1 in every 2000 policyholders will have a major injury and 1 in every 400 a minor injury.What is the standard deviation of the company's profit on this policy?

• A)$582.92
• B)$466.34
• C)$447.68
• D)$498.98
• E)$550.28

---

Definitions:

Competitive

A state of being in which entities vie against each other to achieve a goal, such as market dominance or winning a contest.

Profit-Maximizing

The process or strategy of adjusting operations and resources to achieve the highest possible profit.

Market Wage

The prevailing wage rate in a labor market for a given skill set, determined by supply and demand forces.

Output Price

The market price at which a final good or service is sold, affecting a firm’s revenue and production decisions.