Assignment Task: With 5% probability, Jose will get sick and demand a quantity Q =
60 - (a)
(b) (c)
(d) (e)
3P of medicine.
If the unit price of medicine is $15, what quantity will Jose demand if he gets sick? How much will that cost him?
From Jose's perspective, what is his expected loss from sickness?
Suppose Jose gets an insurance policy with 0% coinsurance. If he gets sick while he has this policy, what quantity of medicine will Jose demand? How much will that cost?
From the insurance company's perspective, what is the expected loss from Jose's sickness?
How likely is it that Jose will choose to purchase the insurance policy described in part (c)? Is there a different kind of insurance policy he may be more likely to purchase?