Suppose, if ill, that Fred’s demand for health services is summarized by the demand curve Q = 50 â

Suppose, if ill, that Fred’s demand for health services is summarized by the demand curve Q = 50 – 2P, where P is the price of services. How many services does he buy at a U = 20Ywhere U is utility and Y is income per month. price of $20? Suppose that Fred’s probability of illness is 0.25. What is the actuarially fair price of health insurance for Fred with a zero coinsurance rate? 8. In Exercise 7, if the insurance company pays Fred’s entire loss, what will Fred’s expenses be? How much will the company pay? Will it continue to offer him insurance at the actuarially fair rate? Why?

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