For each mechanism: (4 pts) If a scaling option like this w…
For each mechanism: (4 pts) If a scaling option like this was discussed in the Savour case, describe what Savour is contemplating doing. If a scaling option like this was not discussed in the case, describe one way they could try to use this mechanism to scale.
Read DetailsScenario 1 (Part 2): Suppose that you are working for an in…
Scenario 1 (Part 2): Suppose that you are working for an insurance company that is attempting to set the price for industrial accident coverage. Firm A has a 12% chance of having an accident, in which case it will incur a loss of $500,000 in damages. Firm B has a 10% chance of having an accident in which it will incur $500,000 worth of damages. Firm A is willing to pay $4000 more than its expected damages for insurance covering the risk. Firm B is even more risk averse, and is willing to pay $6000 over its expected damages to acquire coverage for the risk. The insurance company knows these numbers, but cannot tell which firm is which type. Now consider where the insurance company would price the policy if they wanted to increase the premium. Find the expected profit at this higher price. Comparing this result to the result from the previous question, what is the optimal price for the insurance company to charge for this policy? (Please submit any work for this problem after the exam)
Read Details