document.write( "<A HREF=/cgi-bin/jump-to-question.mpl?question=1115295>Question 1115295</A>: <I><SPAN STYLE=\"word-break: break-all;\"> Suppose you set insurance prices for an insurance company. The insured object is a Dutch oven. With probability 0.02 the lid will need to be replaced and it will cost $50, with probability 0.01 the pot will need to be replaced and it will cost $200. Your boss wants the insurance policy to generate $9 of expected profit.What should be the price of the insurance policy? </SPAN>\n" );
document.write( "</I><HR><TABLE width=100%><TR><TD><B><A HREF=http://www.algebra.com/>Algebra.Com's</A> Answer #730194 by </B><A HREF=/tutors/aboutme.mpl?userid=Theo><B>Theo(13342)</B></A><img src=\"/images/stars/stars-13.gif\" alt=\"\" >&nbsp;<A HREF=/tutors/aboutme.mpl?userid=Theo><IMG SRC=http://www.algebra.com/images/aboutme-small.gif BORDER=0 alt=\"About Me\" VALIGN=MIDDLE></A>&nbsp;<IMG SRC=http://www.algebra.com/cgi-bin/show-face.mpl?user=Theo><BR>You can <A HREF=\"/cgi-bin/embed-solution.mpl?show=1&solution=730194\">put this solution on YOUR website!</A><BR><SPAN STYLE=\"word-break: break-all;\"> you want eache policy to generate 9 dollars of profit.\r<BR>\n" );
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document.write( "there is one policy per pot.\r<BR>\n" );
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document.write( "your formula is:\r<BR>\n" );
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document.write( "9 = x - .02 * 50 - .01 * 200.\r<BR>\n" );
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document.write( "9 is the expected value<BR>\n" );
document.write( "x is the price of the policy\r<BR>\n" );
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document.write( "solve for x to get x = 9 + .02 * 50 + .01 * 200 = 12 dollars\r<BR>\n" );
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document.write( "you would charge 12 dollars for each insurance policy.\r<BR>\n" );
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document.write( "suppose 1000 pots were insured.\r<BR>\n" );
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document.write( "that means you get 12 * 1000 = 12000 dollars.\r<BR>\n" );
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document.write( ".02 * 1000 pots require a new lid.\r<BR>\n" );
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document.write( "that means 20 pots need a lid for a total cost of 20 * 50 = 1000 dollars.\r<BR>\n" );
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document.write( ".01 * 1000 pots need to be replaced.\r<BR>\n" );
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document.write( "that means 10 pots need to be replaced for a total of 10 * 200 = 2000 dollars.\r<BR>\n" );
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document.write( "total cost to you for the 1000 insurance policies is 3000 dollars.\r<BR>\n" );
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document.write( "your profit is 12000 - 3000 = 9000 dollars.\r<BR>\n" );
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document.write( "divide that by 1000 insurance policies sold and your profit is 9 dollars per insurance policy sold.\r<BR>\n" );
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document.write( " </SPAN>\n" );
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