Suppose an Insurance Company Determines That the Average Annual Malpractice

question 384

Multiple Choice

Suppose an insurance company determines that the average annual malpractice cost is $10,000 for reckless lawyers and $500 for careful lawyers. If 10% of the lawyers insured by the company are reckless, the company will earn zero economic profit if the price of insurance is

• A) $500.
• B) $1,450.
• C) $5,250.
• D) $10,000.

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Definitions:

Vertical Axis

In a graph or chart, this is the y-axis, which typically shows the range of values for a dependent variable.

Horizontal Axis

In a graph, this axis typically represents the independent variable or the variable that is being manipulated or changed.

U-shaped

Describes a situation or pattern resembling the shape of the letter "U," often used to describe certain types of economic recoveries or performance graphs.

Market Interest Rate

The prevailing rate at which borrowers can obtain loans and lenders can offer funds in the financial market.