QUESTION 2 Tommy is 20 years old. If Tommy quits smoking today, he is expected to gain 10 years in life expectancy through reduced risk of lung cancer. However, that benefit is 50 years away, while the cost of quitting is experienced now. Tommy is quite impatient with a discount rate of 10%. Assuming Tommy places a disutility value of $10,000 on quitting smoking, conduct a cost-benefit analysis to determine whether quitting smoking is worth it to Tommy. Assume 1 year of healthy life is worth $100,000. The net present value of the benefits of quitting is $ benefit (benefit minus cost) is therefore s calculations, both intermediate and final, to whole numbers) The net present value of the cost of quitting is $ so Tommy does not The net (does/does not) find it worthwhile to quit. (Round all

QUESTION 2 Tommy is 20 years old. If Tommy quits smoking today, he is expected to gain 10 years in life expectancy through reduced risk of lung cancer. However, that benefit is 50 years away, while the cost of quitting is experienced now. Tommy is quite impatient with a discount rate of 10%. Assuming Tommy places a disutility value of $10,000 on quitting smoking, conduct a cost-benefit analysis to determine whether quitting smoking is worth it to Tommy. Assume 1 year of healthy life is worth $100,000. The net present value of the benefits of quitting is $ benefit (benefit minus cost) is therefore s calculations, both intermediate and final, to whole numbers) The net present value of the cost of quitting is $ so Tommy does not The net (does/does not) find it worthwhile to quit. (Round all

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter20: The Problem Of Adverse Selection Moral Hazard

Section: Chapter Questions

Problem 3MC

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Assume that 5% of the people who receive Treatment A die. The sixty percent who fully recover live another 10 years. The treatment is only partially successful for 35% of the patients, who live another 4 years. What is the expected value of Treatment A, expressed as additional years of life?
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