When an Auto Insurance Company Is Screening,it Is

question 8

Multiple Choice

When an auto insurance company is screening,it is

• A) ignoring the possibility of moral hazard in order to minimize adverse selection.
• B) attempting to keep its private information private.
• C) trying to determine if a driver is an aggressive driver or a safe driver.
• D) making its private information public.
• E) marketing its policies to customers.

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Definitions:

Operating Leverage

A measure of how revenue growth translates into growth in operating income, indicating the proportional relationship between fixed and variable costs.

Contribution Margin

The difference between the sales revenue of a product and its variable costs, used to cover fixed costs and profit.

Pretax Net Income

The amount of income earned by a business before taxes have been deducted.

Absorption Costing

A method of product costing that includes all manufacturing costs, both variable and fixed, in the cost of a unit of a product.