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- Economics A risk neutral worker has a reservation wage of 500 and a cost of high effort of 187. Depending on the effort put by the worker and some random luck factor, the employer will earn 2500 (if the worker puts high effort and he gets lucky), or 1500 (if the worker puts high effort and he gets unlucky OR if the worker puts low effort and he gets lucky), or 500 (if the worker puts low effort and he gets unlucky). Assume the worker gets lucky with probability 0.4. The employer wants to incentivize the worker to put high effort and decides to pay the worker an incentive contract comprised of a fixed wage of $500 plus a bonus paid only if the profit of 2500 is realized. Calculate the optimal such bonus that the employer should pay, if it wants to incentivize the worker and maximize its profits at the same time. Round your answer to 2 decimals, if needed.QUESTION 1 A risk neutral worker has a reservation wage of 500 and a cost of high effort of 160. Depending on the effort put by the worker and some random luck factor, the employer will earn 2500 (if the worker puts high effort and he gets lucky), or 1500 (if the worker puts high effort and he gets unlucky OR if the worker puts low effort and he gets lucky), or 500 (if the worker puts low effort and he gets unlucky). Assume the worker gets lucky with probability 0.6. The employer wants to incentivize the worker to put high effort and decides to pay the worker an incentive contract comprised of a fixed wage of $500 plus a bonus paid only if the profit of 2500 is realized. Calculate the optimal such bonus that the employer should pay, if it wants to incentivize the worker and maximize its profits at the same time. Round your answer to 2 decimals, if needed. QUESTION 2 Assume that after buying insurance, drivers can choose to drive safely or drive recklessly. Driving safely or recklessly,…20-1 Your product fail about 2% of the time, on average. Some customers purchase the extended warranty you offer in which you will replace the product if it fails. Would you want to price warranty at 2% of the product price? Discuss both moral hazard and adverse selection issues.
- *the defintion of the top event in safty is describes the point where we no longer have satisfactory control over the hazard.For Pancreas Transplant, DRG code is 010. For DRG 010, Medicare pays fixed amountof $21,313.50. Outlier threshold for Medicare is $25,800. (a) John admitted hospital A for pancreas transplant. The charges for John’s treatment was 128,000. Cost to charge ratio for Hospital A was 0.10. How much payment hospital A would get from Medicare?A gym membership charges their current members a monthly fee on the 1" of the month. Monthly churn rate (the probability of a member ending their membership) is 4%. Profit from the monthly membership fee is $10 per member; and the recruitment cost (advertising and promotions) for a new member are $200. What is the per member expected profit to the gym?
- A construction company needs to move lumber onto the roof of a building. If the lumber falls and hits someone it will cause $1,200,000 in damage. Assume that company must choose between the following levels of precaution: Spend $500 and the probability of an accident is .05 Spend $5,000 and the probability of an accident is .01 Spend $8,000 and the probability of an accident is .008 Spend $10,000 and the probability of an accident is .003 If the construction company is strictly liable for the costs of the accident, how much would they spend on precaution? A. $500 B. $5,000 C. $8,000 D. $10,000ЕОC 12.02 Suppose you are the mayor of a town and you want to increase safety at an intersection. A traffic light will increase safety and reduce fatality risk by 0.5% but costs $100,000. Suppose the value of human life is estimated at $10 million. Should you spend the money to install the traffic light? (Hint: to multiply 1% by 200 you follow this process: 0.01 x 200 = 2). Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a Yes, since the expected benefit ($500,000) exceeds the cost. b Yes, since the expected benefit ($150,000) exceeds the cost. No, since the expected benefit ($50,000) is lower than the cost. d No, since the expected benefit ($15,000) is lower than the cost.Suppose a municipality were considering a ban on sugary soft drinks. They estimate that 20% of the obesity in the city can be attributed to sugary soft drinks, and thus the ban would be expected to reduce obesity by 20%, citywide. Which measure corresponds to '20%? a. Odds ratio b. Population attributable proportion c. Cumulative incidence d. Relative risk e. Risk difference f. Attributable risk among the exposed
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