Which Statement Best Characterizes the Second-Best Policy Offered by a Monopoly

question 12

Multiple Choice

Which statement best characterizes the second-best policy offered by a monopoly insurer when it can't observe the consumer's risk?

• A)It is a single contract offering partial insurance at an intermediate price such that all types are served.
• B)It is a menu of contracts providing full insurance for the least risky types and partial insurance for higher risks.
• C)It is a menu of contracts providing full insurance for the riskiest type and partial insurance at lower prices for lower risks.
• D)The market breaks down since the monopolist cannot design contracts without observing each consumer's risk.

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Definitions:

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Unjust treatment of individuals based on their race or ethnicity.

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A manufacturing method in which a product is assembled step by step as it moves along a conveyor belt or through a series of workstations.