The “universal service” argument often requires that some products be sold at a loss while other products be sold at profits higher than normal.

If the insurance company offers the insurance for $1,500, then the theory of adverse selection predicts that

Suppose that Dirk and Rollergirl are both considering purchasing insurance. Dirk's "expected loss" is equal to $1,600. Rollergirl's expected loss is equal to $1,200. Also, both Dirk and Rollergirl are "risk averse," and so each of them is willing to buy insurance for an amount that's up to $200 in excess of his/her expected loss. A. both of them will agree to purchase the insurance. B. dirk will purchase the insurance, but Rollergirl will decide that it's too expensive. C. neither one of them will agree to purchase the insurance. D. both of them will agree to purchase the insurance, but the insurance company will still lose money regardless.

A profit-maximizing monopolistically competitive firm will expand output to the point where:

a. total revenue equals total cost. b. marginal revenue equals marginal cost. c. price equals average total cost. d. price equals marginal cost.