1.Why is it important to distinguish between fixed and variable costs?
2.Your firm, which operates a nationwide system of cancer clinics, has annual profits of $800 million and cash reserves of $500 million. Your clinics have a replacement value of $200 million, and fire insurance for them would cost $5 million per year. Actuarial data show that your expected losses due to fire are $4 million. Should you buy insurance?
3.Your house is worth $200,000. Your risk of a catastrophic flood is 0.5 percent. Such a flood would destroy your house and would not be covered by homeowners insurance. Although you grumble, you buy flood coverage for $1,200. Are you risk averse or risk seeking?
4.Kim and Pat underwrite insurance. Each underwrites 50 accounts per month. Each account takes four hours to und