Would you expect an insurance company in the "real world" to sell an insurance policy for exactly the "fairly-priced" level as defined in the text?
A)Yes, because the fairly-priced insurance policy includes some profit for the insurance company.
B)Yes, because insurance companies are required to sell their policy at the fairly-priced level by law.
C)Probably not, because the expected value of profits for the insurance company would be zero.
D)Probably not, because insurance companies are not in a competitive industry and are able to earn monopoly profits.

Question

Quizplus · Accepted Answer

Insurance companies have to make a profit to cover their operational costs and investments. Therefore, they would not sell an insurance policy at exactly the "fairly-priced" level, as there would be no expected value of profits for the insurance company. This is because the expected value of profits for the insurance company would be zero, and the insurance company would not be able to sustain itself in the long run. Insurance companies are in the business of making a profit, and therefore selling a policy at the "fairly-priced" level, which includes all expected costs, would not generate any profit for the company. Therefore, it is unlikely that an insurance company in the "real world" would sell a policy at this level.

Would You Expect an Insurance Company in the "Real World