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Although self-employed workers have the option to purchase private health insurance, many do not, due to adverse selection. Suppose half the population is healthy and half is unhealthy. The cost of getting sick is $1000 for the healthy and $10,000 for the unhealthy. An individual becomes sick with probability 0.4, regardless of health. The utility of wealth is U(Y) = Y^0.5 for everyone. Although an individual knows whether he is healthy or not, the insurance company does not. Everyone is offered the same insurance premium. Assume insurance companies must make zero expected profits.a. Find the premium corresponding to actuarially fair insurance when everyone purchases insurance. Is it different from the price an insurance company that makes zero expected profits offers?b. If the price determined in a. is offered to the healthy people, do they buy insurance? Explain.c. Find the price of actuarially fair insurance if only unhealthy people purchase insurance.d. If the price determined in part c. is offered to them, do unhealthy people buy insurance? Explain.e. Given your analysis above, what happens in the market for insurance? In particular, since each person decides whether to purchase insurance or not, find the price of insurance and who buys it.
the origin and do not intersect the axes. The price of sushi is $10 and the price of soy milk is $2. She is spending all her income at the basket she is currently consuming, and her marginal rate of substitution of sushi for soy milk is 4. Is she ..
Suppose there is a boombox market that has the following demand curve: P=400-20Q and there are N firms, each with a marginal cost of 30. How many firms must there be for the cournot equilibrium price to go below 40
In this economy, all production output goes to either consumption or savings. The saving rate is fixed at s where 0
A monopolist faces a demand curve given by: P = 220 - 3Q, where P is the price of the good and Q is the quantity demanded. The marginal cost of production is constant and is equal to $40. There are no fixed costs of production.
Determine when the exponents of a Cobb-Douglas production function sum to more than one, the function exhibits
Machine A costs $15,000, has $1,600 in annual operating costs, produces an annual benefit of $8,000, has a useful life of 7 years, and can be sold for salvage at the end of its useful life for $3,000. Machine B costs $25,00..
refer to the following matrix, where each entry shows the level of utility attained by group members from following a particular strategy. Cooperate Shirk Cooperate 10,8 5,4 Shirk 6,10 8,7 If there is as..
Suppose that the price elasticity of demand for cigarettes is.46 in the short run and 1.89 in the long run, the income elasticity of demand for cigarettes is .50, the cross price elasticity of demand between cigarettes and alcohol is -.70.
The following table gives the joint probability distribution between employment status and college graduation among those either employed or looking for work (unemployed) in the working age U.S. population for 2008.
A firm produces two different goods, with demand given by the following Pa=100-2Qa-Qb and Pd=90-2Qb where Pa=price of good A Pb=price of good B, Qa=quantity of good A and Qb= quantity of good B there are 30 units of each in storage
What is the cost function, marginal cost function, and average cost function for each plant? b) What is the efficient scale and minimum average cost for each plant? c) What is the cost function for the firm?
If the CPI was 110 last year and is 121 this year, what is this year's rate of inflation? What is the "rule of 70" How long would it take for the price level to double if inflation persisted at (a) 2, (b) 5, and (c) 10 percent per year
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