An insurance company knows that expected health expenditures are distributed uniformly over the interval [2000, 12000], but is unable to identify the expected health expenditure of any specific individual and thus must charge a uniform premium. Individuals are willing to pay 1.40 times their expected expenditures for insurance coverage.

a. Can the market possibly function at a premium of $7000? Explain reasoning

b. Can the market possibly function at a premium of $10500? Explain reasoning

c. What does parts (a) and (b) tell us about the consequences of adverse selection in health insurance markets?