I. Essay/ Problem-Solving. CHOOSE ONLY ONE. If you answer more than one question
ID: 1190626 • Letter: I
Question
I. Essay/ Problem-Solving. CHOOSE ONLY ONE. If you answer more than one question you will only be given credit for the first one you answer.
1. On the graph below using the midpoints formula compute the elasticity of demand for the segments
a) A and B
b) B and C
c) C and D
d) D and E
e) Then divide the curve by indicating which point(s) indicate elastic, unitary elastic, and inelastic portions.
2. Given a surgical procedure, the probability of dying is 5%, the probability of living 1 more year after the surgery is 20%, living 2 more years is 30%, and living 4 more years (longest) is 20%
a. The only other possible outcome is living 3 years. What is the probability of this?
b. What is the expected life expectancy of an individual that gets this surgical procedure?
3. Given an R-S graph (with the 2 straight lines –representing full insurance and zero profit ), describe in detail the area, line, or point that pertains to
a. Fair and full insurance
b. Fair and partial insurance
c. Unfair and full insurance
d. Unfair and partial insurance
4. (a) For Industry 1, the 6 firms competing are H = $0.3m, I = $4m, J = $0.5 m, K = $6 m and L = 0.7m. Earnings of firm M is 4X the earnings of Firm H. Solve for the HH Index
(b) For industry 2, the 7 firms (P,Q,R,S,T,U,V) have the following shares: Firm P = 12%, Firm Q = 14%, Firm R = 15%, Firm S = 6%, Firm T = 8%, Firm U = 10%. Solve for the HH Index.
(c) Which industry has the higher level of concentration?
5. In the medical tele tracking industry, Firm X occupies 11% of the industry, Firm Y has $1 million in revenues, Firm Z has 13% share and Firm V has $2 million in revenues. Firm U occupies 16%. If total revenues = $10 million determine:
a. Shares of Firms Y and V
b. Total industry revenue
c. Revenues of Firms X, Z, and U
d. HH Index
6. Describe all the possible relationships (greater, equal, less) of IS , IH , I’H , I’S , and E(I) given
a. Fair and full insurance
b. unfair and full insurance
c. Fair and partial insurance
d. unfair and partial insurance
(Note: there are 5 variables to compare. This question is not asking you to write down the 2 basic equations that define fairness/unfairness and fullness/partiality)
7. Describe all the possible utility relationships (greater, equal, less) among all types of policy comparisons
a. Fair and full vs. fair and partial
b. Fair and full vs. unfair and full
c. Fair and full vs. unfair and partial
d. Fair and partial vs. unfair and full
e. Fair and partial vs. unfair and partial
f. Unfair and full vs. unfair and partial
Explanation / Answer
2)
a)
Given, P(X) = Probabilitu of a person to survive for X years after surgery
P(0) = 5%
P(1) = 20%
P(2) = 30%
P(4) = 20%
P(living) + P(dying) =1
=> P(1) + P(2) + P(3) + P(4) + P(0) =1
=> 0.2+0.3+0.2+ P(3) + 0.05 = 1
=> P(3) = 1 - 0.75 = 0.25
Therefore, the probability of living 3 years = 25%
b)
Expected life expectancy = x1*P(x1) + x2*P(x2) + .....
= 0 * 0.05 + 1*0.2 + 2*0.3 + 3*0.25 + 4*0.2
= 0.2 + 0.6 + 0.75 + 0.8
= 2.35
Therefore, expected life expectancy = 2.35 years