Which of the following statements is INCORRECT regarding the properties of information products?
A) Providing an information product entails incurring relatively high fixed costs.
B) The average total cost curve for a firm that sells an information product slopes upward.
C) The firm experiences economies of operation in the short run.
D) In the long run, the producer earns sufficient revenue to cover the opportunity cost of capital.
Answer: B
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A monopolist produces
a. more than the socially efficient quantity of output but at a higher price than in a competitive market. b. less than the socially efficient quantity of output but at a higher price than in a competitive market. c. the socially efficient quantity of output but at a higher price than in a competitive market. d. possibly more or possibly less than the socially efficient quantity of output, but definitely at a higher price than in a competitive market.
Insurance companies charge annual premiums to collect revenue, which they then use to pay customers who file claims for damages they incur. As a result of the moral hazard problem (1) what is the effect on the percentage of policy holders making claims, and (2) what is the effect on the average premium charged when compared to a world with no moral hazard problem?
a. The percentage of policy holders making claims is higher; average annual premiums are lower. b. The percentage of policy holders making claims is lower; average annual premiums are lower. c. The percentage of policy holders making claims is higher; average annual premiums are higher. d. The percentage of policy holders making claims is lower; average annual premiums are higher.