Assume that a single insurance plan applies to 2,000 low-risk people and 1,000 high-risk people opting for insurance coverage. If the average claim submitted by low-risk people is 100 while that submitted by high-risk people was 1,000 . the insurer would break even by setting a premium of:
a. 250.
b. 400.
c. 200.
d. 500.
QUESTION 2The structure of an organization is influenced by transactions costs.
Indicate whether the statement is true or false
QUESTION 3Which of the following types of mergers are of greater concern as being anticompetitive among antitrust regulators?
a. Horizontal mergers
b. Vertical mergers
c. Conglomerate mergers
d. Horizontal, vertical and conglomerate mergers are of equal concern as being anticompetitive
QUESTION 4Which of the following is a possible result of adverse selection?
a. Only lemons remain in the market for used cars.
b. A store manager shirks his responsibility because his supervisor is not present at all times.
c. A car mechanic does not bother to properly fix the customers' cars when his work cannot be monitored.
d. Many people selling their houses at very low prices expecting prices to decline further.
QUESTION 5Upstream and downstream refer to the degree of horizontal integration.
Indicate whether the statement is true or false
QUESTION 6If an industry is dominated by three large producers whose revenues represent 30, 30, and 30 of the market's total revenues with the remaining two firms each representing 5, what would be the measure of the Herfindahl-Hirschman Index for this industry?
a. 2,725
b. 2,750
c. 9,975
d. 10,000
QUESTION 7The problem of _____ can arise when a seller cannot obtain reliable information from buyers.
a. moral hazard
b. adverse selection
c. lemons problem
d. incomplete information
QUESTION 8Make or buy decisions affect the degree of vertical integration.
Indicate whether the statement is true or false
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