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Question: Suppose that an individuals demand curve for doctor visits per year is given by the equation P = 100 - 25Q, where Q is the number of doc-tor visits per year and P is the price per visit. Suppose also that the marginal cost of each doc-tor visit is $50.

a. How many visits per year would be efficient? What is the total cost of the efficient number of visits?

b. Suppose that the individual obtains insurance. There is no deductible, and the coinsurance rate is 50 percent. How many visits to the doctor will occur now? What are the individuals out-of-pocket costs? How much does the insurance company pay for this individuals doctors visits?

c. What is the deadweight loss (if any) caused by this insurance policy?

d. What happens to the size of the deadweight loss if it turns out that the marginal external benefit of visiting the doctor is $50?

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Category:- Basic Finance
Reference No.:- M92308753

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