Suppose that an individuals' demand curve for doctor visits per year is given by the equation Q = 10 - (1/10)P, where Q is the number of doctor visits per year and P is the price per visit. Suppose also that the marginal cost of each doctor visit is $60.
a. How many visits per year would be efficient?
b. What is the total cost of the efficient number of visits?
Now suppose that the individual obtains insurance. There is no deductible, and the coinsurance rate is 50%.
c. How many visits to the doctor will occur now?
d. What are the individual's out-of-pocket costs?
e. How much does the insurance company pay for this individual's doctor visits?
f. What is the deadweight loss caused by this insurance policy? Please draw a graph to answer it.