Question
Bob grows corn, and every year he faces risks of losing his production to drought, insects, or disease. Precautions like soil preparation and correct use
Bob grows corn, and every year he faces risks of losing his production to drought, insects, or disease. Precautions like soil preparation and correct use of water, fertilizer, and pesticide can decrease the risk of crop failure. The marginal benefit and marginal cost of these precautions are MB = 120 - 4A and MC = 20 + A, where A is the number of precautions.
a. How many precautions does Bob take?
b. Suppose that Bob buys insurance against the risk of crop failure, which changes the marginal benefit of precautions to MB = 180 - 15A. How many precautions does Bob now take?
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Business Its Legal Ethical and Global Environment
Authors: Marianne M. Jennings
11th edition
1337103578, 978-1337514392, 133751439X, 978-0357690130, 978-1337103572
