Willy's Only Source of Wealth Is His Chocolate Factory

question 4

Multiple Choice

Willy's only source of wealth is his chocolate factory.He has the utility function pc^1/2_f +(1 - p) c^1/2_nf, where p is the probability of a flood, 1 - p is the probability of no flood, and c_f and c_nf are his wealth contingent on a flood and on no flood, respectively.The probability of a flood is p = 1/6.The value of Willy's factory is $500,000 if there is no flood and $0 if there is a flood.Willy can buy insurance where if he buys $x worth of insurance, he must pay the insurance company $2x/17 whether there is a flood or not but he gets back $x from the company if there is a flood.Willy should buy

• A)no insurance since the cost per dollar of insurance exceeds the probability of a flood.
• B)enough insurance so that if there is a flood, after he collects his insurance, his wealth will be 1/4 of what it would be if there were no flood.
• C)enough insurance so that if there is a flood, after he collects his insurance, his wealth will be the same whether there was a flood or not.
• D)enough insurance so that if there is a flood, after he collects his insurance, his wealth will be 1/3 of what it would be if there were no flood.
• E)enough insurance so that if there is a flood, after he collects his insurance, his wealth will be 1/5 of what it would be if there were no flood.

Recognize common mistakes in crafting persuasive messages and strategies to avoid them.

Comprehend the role of persuasion in professional communication and ethical considerations.

Differentiate between emotional, logical, and ethical appeals in persuasive messages.

Know the steps involved in creating a persuasive message, from analysis to writing.

---

Definitions:

LIFO Perpetual

A perpetual inventory system that uses the Last-In, First-Out method to account for inventory costs, where the most recently acquired items are considered sold first.

FIFO

First In, First Out, an inventory valuation method where goods purchased or produced first are sold or used first.

LIFO Periodic

An inventory valuation method, Last In First Out, used in periodic inventory systems where the last items added to the inventory are assumed to be sold first.