Risk Diversification Refers to the Process by Which

question 95

Multiple Choice

Risk diversification refers to the process by which:

• A)people organize themselves into a group to collectively absorb the cost of the risk faced by each individual.
• B)insurance companies change their clients' risk aversion.
• C)risks are shared across different people, reducing the impact of any particular risk on any one individual.
• D)insurance companies reallocate the likelihood of catastrophes happening.

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Definitions:

Absorption Cost Approach

A costing method that includes all manufacturing costs — direct materials, direct labor, and both variable and fixed manufacturing overhead — in the cost of a product.

Fixed Costs

Expenses that do not change with the level of production or sales activities, such as rent, salaries, and insurance.

Net Income

The company's net income following the deduction of all expenses and taxes from its total revenue.

Variable Costs

Expenses that fluctuate in proportion to the level of output or activity, such as raw materials and direct labor costs.