Chapter 6, Problem 1E

To determine

Determine the average spending.

Explanation of Solution

The average spending of high-risk patients is $40,000, low-risk patients is $1,000, and the overall low-risk patients is 90%.

Therefore, the average spending for this population can be calculated as follows:

$\begin{array}{c}\text{Average spending}=\left(\text{\% of low risk patients}\times {\text{Average spending}}_{\text{low risk}}\right)\\ +\left(\text{\% of high risk patients}\times {\text{Average spending}}_{\text{high risk}}\right)\\ =\left(0.90\times 1,000\right)+\left(0.10\times 40,000\right)\\ =900+4,000\\ =4,900\end{array}$

Thus, the average spending is $4,900.