Please answer and show complete solution. Thank you!! 3. Assume the health production function is h = 365 -1/ H, where h is the number ofhealthy days a person has in each year and H is the person's health capital. Assume thisperson earns a wage of $100/day, and the marginal cost of health investment = 25 and isconstant over time. The annual interest rate is 5 percent, and health capital depreciates ata rate of 15 percent per annum. a. What does the MEC for this person's health capitallook like? Draw the MEC curve on a graph, with health capital on the x-axis and the rateof return on the y-axis. Explain the shape of this MEC curve. b. What is the cost of healthcapital in this problem? c. Find the optimal level of health this person demands under theabove conditions. d. Suppose the person acquires a chronic disease and his healthdepreciation rate rises to 35 percent annually. How does this change your answer to part(c)? e. Suppose instead of having a chronic disease the person experiences a recessionand his wage falls to $50/day. Assume the change in the price of time inputs accounts for20 percent of the total change in cost of a unit of health investment. Show graphicallyhow this change affects the MEC curve. What is the person's optimal health demandnow? f. Now focus on the role of human capital in this model. Suppose a person'seducational attainment increases. How does the MEC curve shift in this case? How doesthis shift affect the person's investment in health capital?

Introduction Assume that the health production function is h = 365 - 1/H, where h is the total…

Assume the health production function is h = 365 -1/ H, where h is the number of ealthy days a person has in each year and H is the person's health capital. Assume this erson earns a wage of $100/day, and the marginal cost of health investment = 25 and is onstant over time. The annual interest rate is 5 percent, and health capital depreciates at rate of 15 percent per annum. a. What does the MEC for this person's health capital ok like? Draw the MEC curve on a graph, with health capital on the x-axis and the rate return on the y-axis. Explain the shape of this MEC curve. b. What is the cost of health pital in this problem? c. Find the optimal level of health this person demands under the ove conditions. d. Suppose the person acquires a chronic disease and his health preciation rate rises to 35 percent annually. How does this change your answer to part )? e. Suppose instead of having a chronic disease the person experiences a recession nd his wage falls to $50/day. Assume the change in the price of time inputs accounts for SL hically.

Assume the health production function is h = 365 -1/ H, where h is the number of ealthy days a person has in each year and H is the person's health capital. Assume this erson earns a wage of $100/day, and the marginal cost of health investment = 25 and is onstant over time. The annual interest rate is 5 percent, and health capital depreciates at rate of 15 percent per annum. a. What does the MEC for this person's health capital ok like? Draw the MEC curve on a graph, with health capital on the x-axis and the rate return on the y-axis. Explain the shape of this MEC curve. b. What is the cost of health pital in this problem? c. Find the optimal level of health this person demands under the ove conditions. d. Suppose the person acquires a chronic disease and his health preciation rate rises to 35 percent annually. How does this change your answer to part )? e. Suppose instead of having a chronic disease the person experiences a recession nd his wage falls to $50/day. Assume the change in the price of time inputs accounts for SL hically.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Please answer and show complete solution. Thank you!!

3. Assume the health production function is h = 365 -1/ H, where h is the number of
healthy days a person has in each year and H is the person's health capital. Assume this
person earns a wage of $100/day, and the marginal cost of health investment = 25 and is
constant over time. The annual interest rate is 5 percent, and health capital depreciates at
a rate of 15 percent per annum. a. What does the MEC for this person's health capital
look like? Draw the MEC curve on a graph, with health capital on the x-axis and the rate
of return on the y-axis. Explain the shape of this MEC curve. b. What is the cost of health
capital in this problem? c. Find the optimal level of health this person demands under the
above conditions. d. Suppose the person acquires a chronic disease and his health
depreciation rate rises to 35 percent annually. How does this change your answer to part
(c)? e. Suppose instead of having a chronic disease the person experiences a recession
and his wage falls to $50/day. Assume the change in the price of time inputs accounts for
20 percent of the total change in cost of a unit of health investment. Show graphically
how this change affects the MEC curve. What is the person's optimal health demand
now? f. Now focus on the role of human capital in this model. Suppose a person's
educational attainment increases. How does the MEC curve shift in this case? How does
this shift affect the person's investment in health capital?

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