Consider a health insurance market. The market has many insurers so that each insurance company offers insurance at the fair insurance premium.Each consumer has utility function, and has an initial wealth of $200. Consumers have access to a (magical) gym that reduces their probability of needing to go to the doctor from 90% to 10%. A gym membership costs $6. A trip to the doctor costs $120.Suppose insurance companies charge the fair insurance premium which assumes all consumers go to the gym. This fair insurance premium is $? and the insurance company makes a profit of $? per consumer.Suppose insurance companies continue to charge the fair insurance premium that assumes all consumers go to the gym, but now charges a copay of $15 for a doctor's visit. The insurance company now makes a profit of $ per consumer. By implementing a copay, the insurance company the problem. Consider a health insurance market. The market has many insurers so that each insurancecompany offers insurance at the fair insurance premium.Each consumer has utility function, U(X)=√√X and has an initial wealth of $200. Consumershave access to a (magical) gym that reduces their probability of needing to go to the doctor from90% to 10%. A gym membership costs $6. A trip to the doctor costs $120.Suppose insurance companies charge the fair insurance premium which assumes all consumers goto the gym. This fair insurance premium is $and the insurance companymakes a profit of $per consumer.Suppose insurance companies continue to charge the fair insurance premium that assumes allconsumers go to the gym, but now charges a copay of $15 for a doctor's visit. The insurancecompany now makes a profit of $✓ per consumer. By implementing a copay,the insurance company✓ problem.✓the

Given: U(X) = X0.5 Initial wealth = $200 Gym membership = $6 which reduces going to a doctor from…

Consider a health insurance market. The market has many insurers so that each insurance company offers insurance at the fair insurance premium. Each consumer has utility function, U(X)=√√X and has an initial wealth of $200. Consumers have access to a (magical) gym that reduces their probability of needing to go to the doctor from 90% to 10%. A gym membership costs $6. A trip to the doctor costs $120. Suppose insurance companies charge the fair insurance premium which assumes all consumers go to the gym. This fair insurance premium is $ ✓ and the insurance company makes a profit of $ per consumer. Suppose insurance companies continue to charge the fair insurance premium that assumes all consumers go to the gym, but now charges a copay of $15 for a doctor's visit. The insurance company now makes a profit of $ per consumer. By implementing a copay,

Consider a health insurance market. The market has many insurers so that each insurance company offers insurance at the fair insurance premium. Each consumer has utility function, U(X)=√√X and has an initial wealth of $200. Consumers have access to a (magical) gym that reduces their probability of needing to go to the doctor from 90% to 10%. A gym membership costs $6. A trip to the doctor costs $120. Suppose insurance companies charge the fair insurance premium which assumes all consumers go to the gym. This fair insurance premium is $ ✓ and the insurance company makes a profit of $ per consumer. Suppose insurance companies continue to charge the fair insurance premium that assumes all consumers go to the gym, but now charges a copay of $15 for a doctor's visit. The insurance company now makes a profit of $ per consumer. By implementing a copay,

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter18: Asymmetric Information

Section: Chapter Questions

Problem 18.8P

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