A Fifth-Grade Entrepreneur Decides to Sell Playground Protection

Multiple Choice

A fifth-grade entrepreneur decides to sell playground protection.He decides he will pay protection holders $5 if they get beat up by the playground bully ($5 is a rough estimate of the monetary value of the pain a beaten-up student experiences) .On the playground,20% of the kids are wimps,and 80% are not.The probability that a non-wimp will get beat up by the bully is .3.This probability doubles for wimps.Assuming the kids know if they are wimps or not,where should the entrepreneur price his protection policy (pricing at fair value) ?

A) $1.80
B) $3.00
C) $1.00
D) $1.50