Question

4. Suppose the probability of a snake bit on a jungle trip arranged by World Tours is .01. If someone is bitten by a snake, they have to be helicoptered to civilization which costs $1000 and incur $3000 in medical expenses. An antidote cost $100. If World Tour does not have the antidote kit, and someone is bit, are they liable? Explain. How would your answer change if the antidote kit costs $10? Explain.

Answer 1

Probability of a person getting bit by a snake = 0.01

In case a person is bit, cost incurred = $ 3000 + $ 1000 = $ 4000

Cost of antidote = $ 100

Estimated cost of not carrying the antidote = 0.01 * $ 4000 = $ 40 which is less than the $100 fixed cost incurred by carrying an antidote kit. .

Hence, they can justify that the antidote cost is too high and will not to liable for not carrying it.

However, if the price of the antidote is $ 10 and the expected cost of not carrying it being $ 40, it will not be possible to justify not having the kit.

Since, the cost of carrying the antidote is less than the estimated cost of not carrying it, antidote kit in such a situation should be present.