Answered: Suppose an insurance company wants to…

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

1.) Suppose an insurance company wants to charge a very healthy individual a premium of $1,200 a year for health coverage. It also wants to charge a less healthy individual a premium of $3,600 a year for health coverage. It is seeking to ascertain from any given customer information regarding his/her health by asking for several pieces of health-related information, such as doctor assessments of the person’s health, history of health-related problems, etc. The opportunity cost of a very healthy person securing a health report is $250 and the opportunity cost of a less healthy person securing a health report is $650. Of the choices below, how many reports should the company request to best ensure its paying the right premium to the right person?

a. 6.

b. 2.

c. 0.

d. 14.

2).

Reconsider again the previous health insurance question. Suppose that due to some innovations in technology as well as increased efforts to shorten/streamline patient reports as doctors look for ways to reduce costs, it has become easier to obtain health related reports. As a result, the opportunity cost of a very healthy person securing a health report has dropped to $150 and the opportunity cost of a less healthy person securing a health report has dropped to $200. Of the choices below, how many reports should the company request to best ensure its paying the right premium to the right person?

a. 6.

b. 2.

c. 14.

d. 0.

3).

Reconsider again the previous health insurance question. Of the choices below, which one is closest to the spread between the minimum possible number of reports and the maximum possible reports to achieve the company’s desired outcome?

a. 10.

b. 4.

c. 6.

d. 0.

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a. 10.

b. 4.

c. 6.

d. 0.

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