A Malaccan farmer needs to make a decision. His orchard is expected to produce 100,000 durians which he wishes to sell to a large grocery chain at RM 15 per durian as 'Grade A' durians. However, he has great concern about the possibility of early flood damaging his crop. For three of the past five years, the western part of the state where the farmer lives has suffered severe flood. The Department of Agriculture's figures show that the probability of flood in the durian orchard area in any given year is 20%. If his crop is damaged, it would not be marketable as fresh fruit and he would have to sell it to a cannery in Balik Pulau for RM3.00 per durian. He could purchase insurance which would ensure that if his peaches were damaged, he could sell the total crop (both damaged and good fruit) to the insurance company for RM7.00 per durian. The cost of the insurance would be RM50, 000. 

What are the monetary expectations of the farmer's decision to purchase or to not purchase insurance?

Answer rating: 100% (QA)

If farmer does buy insurance then his monetary expectations are as below Exp... View the full answer