In an Insurance Market,________ Occurs When One Type of Policy

question 4

Multiple Choice

In an insurance market,________ occurs when one type of policy generates losses,while another type of policy generates profits,and all policies collectively break even.

• A) cross-subsidization
• B) pooling
• C) a separating equilibrium
• D) screening

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Definitions:

Fixed Expenses

Costs that do not change with the level of production or business activity.

Unit Contribution Margin

The amount by which the selling price of a unit exceeds its variable costs, indicating how much it contributes to covering fixed costs and generating profit.

Fixed Expenses

Expenses that remain constant regardless of production or sales volume, including rent, salaries, and insurance.

Sales Mix

The relative proportions in which a company’s products are sold. Sales mix is computed by expressing the sales of each product as a percentage of total sales.