If there are 1,000 people, each of whom owns a $100,000 house, and they each stand a 1/1,000 chance each year of suffering a fire that will totally destroy their house, what is the minimum that they would have to pay annually for fire insurance?
What will be an ideal response?
We can calculate the expected loss for any one individual as: E.L. = 0.001 ($100,000) + 0.999($0) = $100.00. Since the expected loss for each individual is $100 per year, the minimum that each would have to pay is $100.00 a year, in fact, given the probability of 1 in a 1000 homeowners in this group suffering a fire each year, at $100 each, on average, there should be just enough to compensate the person suffering the fire.
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Assume someone organizes all farms in the nation into a single-price monopoly. What is the monopoly's marginal revenue curve?
A) It is a horizontal line at the competitive industry's price. B) It is a line that lies below the new monopoly's demand curve. C) It is a vertical line at the monopoly's chosen output level. D) It is identical to the demand curve for the monopolist's output. E) It is a line that lies above the new monopoly's demand curve.
In the figure above, Jill is producing at point A. Jill's opportunity cost producing one pair of pants is
A) 2 shirts per pair of pants. B) 3 shirts per pair of pants. C) 3/5 of a shirt per pair of pants. D) 5/3 of a shirt per pair of pants.
The recent reduction in the price of oil has increased the demand for foreign automobiles. Based on this statement, what may be concluded about price, cross-price, or income elasticity of demand?
What will be an ideal response?
The multiplier is equal to
a. the reciprocal of MPC. b. the reciprocal of MPS. c. MPC + MPS. d. MPC/MPS.