How do you find the efficient number of insured individuals for part d? as exten

Question

How do you find the efficient number of insured individuals for part d?

as extent coverage, deductibles, network of doctors etc.). There are 100 potential buyers of health insurance. At price p, 100 - p of them are interested in buying the insurance. Buyers are not identical- they differ with respect to their health. Hence, the cost of serving them depends on how many individuals buy insurance. Suppose that the total cost of serving the first q customers is given by 80q -2 (a) This cost structure corresponds to adverse (negative) rather than advantageous selection. Why? (b) What is the supply curve here assuming that the firm makes zero profits (because there is free entry into the industry)? (c) What will be the equilibrium price and the number of insurance policies sold? (d) It would be inefficient here for the government to implement policies that would lead to everyone being insured. Explain why. What would be the efficient number of insured individuals?

Explanation / Answer

To calculate the efficient number of insured individuals just differentiate the Total cost function and make it as Marginal cost and after that make MC=0 , and fund q and at equilibrium price equals to Marginal cost .

And from that way you will find the value of Q I.e efficient number of insured individuals.

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