Question

PLEASE HELP!?!?!?!?! In our amusement park that we built this week, the ride Diablo’s Domain had revenue of $250,000,000 in its first year as expected. The company paid $750,000 for insurance or $3 for every $1,000 in revenue. If the park is wildly successful and revenue increases by 25% in the second year and the rate of $3 for every $1,000 holds true, how much would it pay for insurance? Do you think it’s reasonable for insurance costs to increase proportionally? Why or why not?

Answer 1

Answer:

1) The amount to be paid as insurance if the revenue increases is $937,000

2) Yes because the total value of the risk insured and the likelihood of the occurrence of the risk both increases

Step-by-step explanation:

1) The given amount in revenue of the Diablo's Domain = $250,000,000

The amount the company paid as insurance  = $750,000

The equivalent amount the company paid as insurance = $3 for every $1,000

The percentage amount in revenue the park revenue increases by = 25%

Therefore, the new amount in revenue = 1.25 × $250,000,000 = $312,500,000

The amount to be paid as insurance if the revenue increases = $315,500,000 × 3/1000 = $937,5000

The amount to be paid as insurance if the revenue increases = $937,000

2) It is reasonable for the insurance cost to increase proportionally when the items insured which leads to the increase in revenue increases because the value of the risk insured which is the event of settlement for losses increases as well as the probability of the risk occurring also increases.