1. The marginal cost pricing model calculates a markup over marginal costs using

Question

1. The marginal cost pricing model calculates a markup over marginal costs using estimates of the price elasticity of demand. Will any other pricing strategy result in higher profits?

2. Price discrimination requires the ability to distinguish customers who are the most price- sensitive and the ability to prevent arbitrage (resale of your products by customers who buy at low prices). What attributes of healthcare products make these tasks easy to do?

3. Describe some healthcare situations in which an agent has taken advantage of a principal. Now describe some healthcare transactions that have not taken place because of fears about asymmetric information.

4. What are some strategies for reducing adverse selection in insurance markets? What sorts of problems do these solutions cause?

Explanation / Answer

1)Contribution margin-based pricing maximizes the profit derived from an individual product, based on the difference between the product's price and variable costs (the product's contribution margin per unit), and on one

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