Answer to Question #91629 in Microeconomics for Ida

Question #91629

If the equilibrium price for an average hospital stay with no insurance is $5,000. At that price, 1000 people are hospitalized each year. Now suppose an insurer offers a policy to lower the out of pocket price of a stay to $100, and at that price, 1200 people are hospitalized
a.How much TOTAL premium revenue must be collected to finance this arrangement?
b.How much premium revenue per hospitalized person must be collected? Would the average person be willing to pay this premium if they were risk averse?

Expert's answer

a. TOTAL premium revenue = 1200 * $5,000 = $6,000,000

b. 5 000 / 100 = 50 premium revenue

the average person would be willing to pay this bonus if he was at risk