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In a small island population, half the people are healthy and half are sick. The annual expected medical claims of the healthy and sick are $200 and $4,000, respectively. Assume that the health insurance company does not know whether people are healthy or sick before they buy insurance. If the health insurance company charges an annual premium of $2,100 (the average expected claim) , only the _____ will buy insurance, driving future premiums _____.
Budgeted Net Income
The estimated amount of money expected to be earned over a specific period after all expenses are subtracted.
Variable Costs
Costs that change in proportion to the level of production or business activity.
Fixed Costs
Expenses that do not vary with the volume of output, including costs like rent, salaries, and insurance premiums.
Net Income
The total earnings of a company after subtracting all expenses, taxes, and costs, indicating its profitability.
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