A rock concert promoter has scheduled an outdoor concert on July 4th. If it does not rain, the promoter will make $30,000. If it does rain, the promoter will lose $15,000 in guarantees made to the band and other expenses. The probability of rain on the 4th is .4.
a. What is the promoter's expected profit? Is the expected profit a reasonable decision criterion? Explain.
b. How much should an insurance company charge to insure the promoter's full losses? Explain your answer.