Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Microeconomics Expert

Suppose there are 10,000 individuals facing an identical risk of illness (say 10%). If fell ill, without insurance, an individual is expected to incur $20,000 in health care expenditures. If they are risk averse, each would prefer to pay a $2000 premium and be compensated in case they fall ill. Ignoring administrative costs, an insurance agency would break-even charging each individual a premium of $2000. But suppose that, once they have full insurance coverage and no longer have to pay any out-of pocket health care costs, each of those who
fall ill consume $25,000 in health care.

a) Did the insurer make any profit? Why or Why not?

b) If, anticipating this behavioural change, the insurer charges a premium of $2500. Would it be profitable for the insurer? Why or Why not?

c) Instead of each of the 10,000 individuals facing an identical risk of illness (10%), suppose that for one-quarter of them the risk of illness is 5%, for one quarter the risk is 15%, and for one-half it remains 10%. The total expected losses remain $20 million. Suppose that the insurer still charges everyone the same premium of $2000 as he is not able to identify which individuals face a risk of 5%, 10%, and 15%. What will happen under such scenario?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M939276

Have any Question? 


Related Questions in Microeconomics

Assignmentwhen completing the las in the weekly discussions

Assignment When completing the LAs in the Weekly Discussions please follow these directions and format: In your narrative response to the LAs, start out by first clearly identifying, defining and explaining the managemen ...

Q1 garys labor supply is given by h -10 071428w where h

Q1. Gary's labor supply is given by H = -10 + 0.71428.w, where H is the hours worked per week and w is the hourly wage rate. Mary and Terry's labor supply functions are represented by H= -2 + 0.25.w and H= -38+1.7272.w, ...

Research proposal economicsa proposal of your research in

Research Proposal Economics A proposal of your research in the form of a 2-page double-spaced typed paper (not including the cover page; use font number 12). Indicate your research topic, describe your research interest ...

Research topicthis assignment is the first step towards

Research Topic This assignment is the first step towards completing your research paper. For this submission, you will need to find a topic of interest related to race and ethnicity, social change, or both. You may come ...

Description debentive enterprise is a company listed on the

Description: Debentive enterprise is a company listed on the New York Stock Exchange. Its capital structure is as follows: equity issued at N.Y.S.E. USD 30,000 (after translation), in addition the company has a debt of U ...

Assignment perfectly competitive and monopoly firmsin this

Assignment: Perfectly Competitive and Monopoly Firms In this Assignment, you will calculate total cost, total revenue, and total profit/loss. Based on the computed results, you will determine the optimal quantity of outp ...

Organization theorythis is the take-home midterm

ORGANIZATION THEORY This is the take-home Midterm Examination. You can use all available information, but are not allowed any exchange of Information between students taking this course. The deadline of HARD COPY submiss ...

Discussion 1long-term investment and cost-benefit analysis

Discussion 1 "Long-Term Investment and Cost-Benefit Analysis" Please respond to the following: · From the scenario for Katrina's Candies, suggest one method in which Herb could use a cost-benefit analysis to argue for or ...

Assignment external financinggenesis energys newly

Assignment: External Financing Genesis Energy's newly established operations management team decided to seek outside assistance in developing a long-term operating plan that also addresses the financial issues identified ...

Question 1complete these 2 questions questions 1 and 2 and

Question 1: Complete these 2 questions (questions 1 and 2) and then submit answers to questions about problem set one on Blackboard. 1) Go to the Problem set button. 2) Then open the problem set submission form folder. 3 ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate