Answer:
$2,554
Explanation:
The computation of value is shown below::-
Assume insurance purchase is N units
[tex]C_n_f = Land\ - Flood\ insurance[/tex]
= $2,400 - $0.2 per dollar
[tex]C_f = Land\ worth\ after\ flood - 0.2\ M + M[/tex]
= $600 - 0.2 M + M
= $600 + 0.8 M
[tex]C_n_f = a\ - \frac{C_f}{b}[/tex]
$2,400 - $0.2 M = a - ($600 + 0.8 M) ÷ b
$2,400 - $0.2 M = a - $600 ÷ b - 0.8 ÷ b
now we will equate the situation
-0.2 M = 0.8 M ÷ b
-0.2 = 0.8 ÷ b
b = 4
Now, we will put the value of b to find out the value of a
a - $600 ÷ b = $2,400
a - $600 ÷ 4 = $2,400
a - $150 = $2,400
a = $2,400 + $150
a = $2,550
Now we will find out the a and b by putting the values
= a + b
= $2,550 + 4
= $2,554
