(Solved): (b) Jaguh Sdn. Bhd has a factory which manufacture industrial hand gloves. The probability of an ...

(b) Jaguh Sdn. Bhd has a factory which manufacture industrial hand gloves. The probability of an explosion at the factory depends on how much the firm spends on safety as given by the table. Expenditure (in RM millions) Probability of Loss 0.0 0.5 1.0 1.5 2.0 2.5 0.030 0.020 0.016 0.013 0.011 0.010 i. If an explosion occurs, the loss to society (e.g. damaged equipment, death of employees, etc) is expected to be at RM250 million. Find the optimal level of safety from a societal perspective. ii. Suppose that Jaguh Sdn. Bhd. has to pay only 50% of the losses that occur. Ignore the time value of money, what is the maximum loss control expenditure that Jaguh Sdn. Bhd. should spend on safety?