(A) The insurance company paid 50% of any damages, so Q50% would provide the amount of investment that was purchased.
(B) The MC curve shifts downward and the equilibrium is at Q(discount) with 50% insurance and discounts.
A) The MB to the restaurant of investments in fire control technology would reduce by half, or the MB would be half as high at all levels of investment, if the insurance company paid 50% of any damages. Consequently, Q50% would provide the amount of investment that was purchased.
B) We can imagine that the MC to the company would be reduced if the insurance provider provided discounts to businesses that implemented fire suppression technologies. As a result, the MC curve shifts downward and the equilibrium is at Q(discount) with 50% insurance and discounts.
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