EC 507—Statistics for Economists Spring 2010 Problem Set 2 1.Acme Insurance Co. is considering entering the market for freak accident insurance. The CEO of Acme wants you to head the new group to develop products to insure individuals against severely biting their tongue or lip. a.Before structuring and selling the policy, you have to determine just how many claims you may come across in a given day. Assuming ACME will sell 100 LIPTUNG PROTM policies, and the probability that any covered person will bite their tongue or lip during the day is 1/36, what probability will 0, 1, 2,. . ., or 10 claims be filed in a single day? Model the tongue and tongue/lip biting process as binomial (where the chewing behavior of each policy-holder is independent). b.Graph the binomial probabilities for 0, 1, 2,. . ., 10, . . .claims. This is the probability density for a Binomial(100, 1/36) distribution.
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