Mike owns a car worth $20,000, and that is his only wealth. There is a 10 percent chance that Mike will have an accident within a year. If he does have an accident, his car is worthless. What is Mike's expected wealth?
What will be an ideal response?
The probability of an accident is 0.1, and the probability of not having an accident is 0.9. So Mike's expected wealth is $20,000 × 0.9 + $0 × 0.1 = $18,000.
You might also like to view...
In which of the following ways is a monopolist different from a perfect competitor?
A. Average cost will continually drop as output expands. B. Price is above marginal revenue. C. Average total cost equals average fixed costs plus average variable costs. D. The demand curve for the industry has a negative slope.
When an airline reduces its fares, other airlines typically match the action. But when an airline increases its fare, other airlines do not follow suit. Which oligopoly model cartel, price leadership, or kinked demand best fits the airline industry as described? Justify your choice and explain why the other models are less appropriate
To calculate a firm's per unit of output profit, it is necessary to subtract
a. price from cost per unit. b. price from resource costs. c. cost per unit from product price. d. cost per unit from cost of resources.
By keeping the basket of goods and services the same when computing the CPI, the Bureau of Labor Statistics isolates the effects of price changes from the effect of any quantity changes that might be occurring at the same time
a. True b. False Indicate whether the statement is true or false