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Please show calculation and reasoning to get credits. 6. (7 pts) A museum wonders whether it should enter an insurance contract to prevent loss
Please show calculation and reasoning to get credits. 6. (7 pts) A museum wonders whether it should enter an insurance contract to prevent loss from thief. Of course, not entering any contract is also an option. The total worth of the museum pieces is estimated to be around $20,000. From statistics, around 3% chance the museum will be visited by thief in the coming year. In case the museum is broken, 60% chance the losses would be $2000 (or -$2000 in profit), while 40% chance the losses would be $6000 (or -$6000 in profit). Company A's policy costs $140 a year but guarantees to refund all losses due to theft. Company B's policy is only $100 a year, but the museum has to pay the first $60 of any loss themselves. Assume that there will be at most one theft a year. Draw the decision tree to minimize expected loss and decide what to do. Show your calculations. (You can convert positive loss to negative profit, and you want to maximize negative profit. In other words, you want the least negative profit).
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