The table below depicts six treatment options available to treat a particular condition. Prices for each...

 

Transcribed Image Text:

The table below depicts six treatment options available to treat a particular condition. Prices for each treatment are set competitively (i.e. equal to the cost of production). The WTP of two patients who suffer from that condition (Jerry and Donna) are also given. Treatment A B C D E F Price/Cost ($) 0 2500 5000 8000 11,000 15,000 Jerry's WTP ($) 0 20,000 28,000 30,000 31,000 31,500 Donna's WTP ($) 0 30,000 40,000 45,000 46,500 47,500 a) What are the efficient treatment choices for Jerry and Donna? b) For each of the following scenarios, determine the treatment choice each patient makes; calculate the surplus Jerry and Donna receive from that choice; calculate the costs (if any) borne by the insurer; and calculate how aggregate surplus compares with the efficient outcome. Jerry and Donna have no insurance. Jerry and Donna both have insurance covering 80% of all medical expenses. Jerry and Donna both have insurance covering 90% of all medical expenses. Jerry and Donna both have full coverage (100% coverage). The table below depicts six treatment options available to treat a particular condition. Prices for each treatment are set competitively (i.e. equal to the cost of production). The WTP of two patients who suffer from that condition (Jerry and Donna) are also given. Treatment A B C D E F Price/Cost ($) 0 2500 5000 8000 11,000 15,000 Jerry's WTP ($) 0 20,000 28,000 30,000 31,000 31,500 Donna's WTP ($) 0 30,000 40,000 45,000 46,500 47,500 a) What are the efficient treatment choices for Jerry and Donna? b) For each of the following scenarios, determine the treatment choice each patient makes; calculate the surplus Jerry and Donna receive from that choice; calculate the costs (if any) borne by the insurer; and calculate how aggregate surplus compares with the efficient outcome. Jerry and Donna have no insurance. Jerry and Donna both have insurance covering 80% of all medical expenses. Jerry and Donna both have insurance covering 90% of all medical expenses. Jerry and Donna both have full coverage (100% coverage).

Answer rating: 100% (QA)

a The efficient treatment choices ... View the full answer