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:

Analytic Rationale

The logical reasoning or analysis used to understand or justify decisions, policies, or strategies, often involving systematic examination of data or facts.

Liberal Rationale

Reasoning based on principles emphasizing freedom, democracy, and the importance of individual rights.

Eclectic Approach

A method that draws from multiple theories, styles, or ideas to create a comprehensive solution or understanding.

Ethical Reasoning

The process of evaluating and deciding the best course of action in situations that involve moral principles or values.