Demand and marginal revenue curves are downward sloping for monopolistically competitive firms because:
A. product differentiation allows each firm some degree of monopoly power.
B. there is free entry and exit.
C. there are a few large firms in the industry and each acts as a monopolist.
D. mutual interdependence among all firms in the industry leads to collusion.
Answer: A
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In a principal-agent problem, if the contract implies that the more risk-averse agent will bear less risk, we can say that this contract exhibits
A) efficiency in risk-bearing. B) risk sharing is not optimal because the less risk-averse (or risk-neutral) agent should bear none of the risk. C) risk sharing is not optimal because all risk should be transferred to the most risk-averse agent. D) risk sharing is not optimal because risk-neutral agents should face no risk.
Even if an insurance company holds a substantial reserve to pay claims, the algebra of probability shows that its funds are likely to be exhausted in payouts
Indicate whether the statement is true or false