Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please show calculation and reasoning to get credits. 6. (7 pts) A museum wonders whether it should enter an insurance contract to prevent loss

image text in transcribed

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).

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Income Tax Fundamentals 2013

Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill

31st Edition

1111972516, 978-1285586618, 1285586611, 978-1285613109, 978-1111972516

More Books

Students also viewed these General Management questions

Question

Why are positive stereotypes harmful?

Answered: 1 week ago

Question

Convert the numeral to a HinduArabic numeral. A94 12

Answered: 1 week ago