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.
Answer: Dirk will purchase the insurance, but Rollergirl will decide that it's too expensive.
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Recessions are typically
A) unintended and disruptive. B) easy to predict in advance. C) the result of non-monetary disturbances. D) events economists have a hard time explaining.
Which of the following statements regarding a monopolist is false?
A) The marginal revenue curve lies below the demand curve for the monopolist's output. B) Unlike a perfectly competitive firm, a monopolist faces little or no competition. C) The monopolist sets price equal to marginal cost to maximize profits. D) The monopolist may or may not earn positive economic profits.