the business. 3.5 Adverse Selection Suppose there are two potential types of driver, safe (S) or risky (R). Insurance company believes that it is equally possible to meet safe or risky driver, but does not know exactly which type of driver has visited. Safe type has valuation of 30$ for the insurance contract and risky type has valuation of 70$ for the insurance contract. Insurance company's expected cost of providing insurance is 40$. Assume that the insurance company is a monopolist, thus it offers the premium as much as an expected valuation of the agent. What is the premium that the insurance company would offer? With that insurance premium, would both safe and risky type agent accept the contract