Q1(a) When a company buys medical insurance for all its workers, the insurance premium per workers is generally much cheaper on the average for  comparable coverage, compared to insurance  purchased by individuals. The difference in cost may  not be just due to differences in the administration  costs in handling bulk insurance policies in a  company’s transaction.  Explain, in the context of  information, for this cost differential.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter9: Applications Of Cost Theory
Section: Chapter Questions
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Q1(a) When a company buys medical insurance for all its workers, the insurance premium per workers is generally much cheaper on the average for  comparable coverage, compared to insurance  purchased by individuals. The difference in cost may  not be just due to differences in the administration  costs in handling bulk insurance policies in a  company’s transaction.  Explain, in the context of  information, for this cost differential.

(b) 

It is discovered that children who attended pre-schools are  helpful and considerate in the society.  However, preschool  is optional and very costly.  Not all parents send their  children to pre-school.

(i) Use an appropriate diagram, depict the market for pre- school and explain the type of externality described. Is the market efficient?

(ii) From social efficiency point of view, should the  government make it compulsory for all parents to send their  children to pre-school? Explain.

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