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:Fire Damage$100,000$75,000$50,000$25,000$10,000$0Probability.006.002.004.003.005.980If Burger Prince was risk neutral, how much would they be willing to pay for fire insurance? If Burger Prince has the utility values given below, approximately how much would they be willing to pay for fire insurance? Loss $100,000$75,000$50,000$25,000$10,000$5,000$0Utility 03060859599100

If Burger Prince restaurant wants to buy fire policy at neutral risk, then they have to pay the…

Answered: Burger Prince Restaurant is considering…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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:

Fire Damage	$100,000	$75,000	$50,000	$25,000	$10,000	$0
Probability	.006	.002	.004	.003	.005	.980

If Burger Prince was risk neutral, how much would they be willing to pay for fire insurance?

If Burger Prince has the utility values given below, approximately how much would they be willing to pay for fire insurance?

Loss	$100,000	$75,000	$50,000	$25,000	$10,000	$5,000	$0
Utility	0	30	60	85	95	99	100

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