-Refer to Figure 14.1.If the insurance company assumes there will be a 50-50 split between high-cost and low-cost customers,the price of insurance will be ________ and there will be ________ consumers.

Question

Quizplus · Accepted Answer

With a 50-50 split between high-cost and low-cost customers, the average cost to the insurance company per customer would be the average of the high and low costs. Assuming high cost is $10,000 and low cost is $5,000, the average cost would be $7,500. To cover costs and potentially make a profit, the insurance company would set the price at $7,500. At this price, only the high-cost customers (who value the insurance at $10,000) would buy it, resulting in 100 customers. However, the question seems to imply a scenario where the insurance is priced to reflect a mix of high and low-cost customers, potentially at a price that averages their costs, leading to a different outcome than the standard model suggests. Given the options, the correct answer reflects an interpretation of the scenario rather than strict adherence to the model, suggesting a price that attracts a different number of consumers.