In a competitive separating equilibrium, low cost consumers of insurance will not fully insure because insurance rates offered to them are not actuarily fair.
Answer the following statement true (T) or false (F)
False
Rationale: Low cost consumers may not fully insure because, in a separating equilibrium, they are not offered a full menu of actuarily fair insurance policies. The zero profit condition still implies that competitive firms would offer actuarily air rates -- jut not the option of full insurance.
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Which of the following is a reason why a firm would experience diseconomies of scale?
A) To finance an increase in the size of its plant a firm must borrow more money or sell more shares of stock. B) As the size of the firm increases, it becomes more difficult to find markets where it doesn't already have operations. C) As the size of the firm increases it becomes more difficult to coordinate the operations of its manufacturing plants. D) As the size of the firm increases, it must operate in other countries where differences in language, customs, and laws increase its average costs.
Product homogeneity is a standard assumption in the traditional theory of pure competition.
a. true b. false