Given a linear demand function of the form Qxd

Suppose you work for an insurance company, and you sell an $120,000 fire insurance policy atan annual premium of $1250. Experience has shown that: the probability of total loss (due to fire) to a house in that area and of the size of your customer's house is .001 (in which case the insurance company will pay the full $120,000 to your customer). the probability of 50% damage (due to fire) to a house in that area and of the size of yourcustomer's house is .003 (in which case the insurance company will pay only $60,000 toyour customer). (For simplicity, we ignore any other partial losses.) (a) Write down the probability distribution of X, the insurance company's annual gain from such a policy (i.e., the amount of money made by the insurance company from such a policy).

(b) What is the mean (expected) annual gain for a policy of this type?

(c) What should be the annual premium (instead of $1250) if the company wants to increase the expected gain from a policy of this type by 10%?