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

question 7

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:

Human Genome

Describes the complete set of nucleic acid sequences for humans, encoded as DNA within the 23 chromosome pairs in cell nuclei and in a small DNA molecule found within individual mitochondria.

Genes

Units of heredity made up of DNA that determine characteristics of living organisms.

Nature-Nurture Issue

A debate concerning the relative importance of an individual's innate qualities ("nature") versus personal experiences ("nurture") in determining or causing differences in physical and behavioral traits.

Psychological Traits

Enduring characteristics or behaviors that define an individual's personality.