BA 372 Lesson 10 Assignment 5

BA 372 Lesson 10 Assignment 5 - 2 Two ice-cream stands are...

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Ashley B. Hilliard 258-10-0169 July 5, 2010-October 22, 2010 BA 372 Lesson#10, Assignment 5 1. Suppose that the Live-Long-and-Prosper Health Insurance Company charges $5,000 annually for a family insurance policy. The company’s president suggests that the company raise the annual price to $6,000 to increase its profits. If the firm followed this suggestion, what economic problem might arise? Would the firm’s pool of customers tend to become more or less healthy on average? Would the company’s profits necessarily increase? The firm’s pool of customers could potentially decease due to the increase in the price of the policies. From an economic stand point many customers will not be able to afford the rate hike and in return will have to find another insurance company or forgo having life insurance at all. The company’s profits will only increase if they are able to sustain all of their current clients and add addition otherwise if they lose customers due to the increase they will not increase profits.
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Unformatted text preview: 2. Two ice-cream stands are deciding where to locate along a 1-mile beach. Each person sitting on the beach buys exactly 1 ice-cream cone per day from the nearest stand. Each ice-cream seller wants the maximum number of customers. Where along the beach will the two stands locate? The first ice-cream stand should be at the .5 mile marker and the second stand should be at the 1 miles marker. This helps maximize their potential for customers because they are evenly apart. 3. After a widely reported earthquake in California, many people call their insurance company to apply for earthquake insurance. Might this reaction reflect some deviation from rationality? Discuss. Yes, this does deviate from reality. If the home applied for earthquake insurance prior to the earthquake they would have planned in advance for such an event. A lot of home owners do not get earthquake insurance with when first offered because they believe that they will never affected by such a event....
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