Suppose that an individual’s demand curve for doc-tor visits per year is given by the equation P =100 – 25 Q , where Q is the number of doctor visits per year and P is the price per visit. Suppose also that the marginal cost of each doctor 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 individual’s out- of- pocket costs? How much does the insurance company pay for this individual’s 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?