For an individual, suppose the Marginal Benefit of health care consumption is given by the equation P=500-3Q. The Marginal Social Cost of providing this care is 20+2Q. This individual has an insurance policy that stipulates that each unit of health care consumed will have an Out of Pocket (OOP) cost of 20.
a) Solve for the optimal level of consumption and price of health care for this society.
b) Solve for the private market equilibrium level of health care. What is the social cost at this level?
c) Calculate the deadweight loss.
d) What are the total OOP costs for this individual?
e) (Challenge) In order to break even, how large must the premium be to this individual?