1. Doctor\'s office visits. Suppose that a consumer\'s annual demand for office
ID: 1142216 • Letter: 1
Question
1. Doctor's office visits. Suppose that a consumer's annual demand for office visits is described by the equation q = 8-0.1p. If office visits cost $30, and the consumer has no health insurance (i.e., the consumer pays full price), how many office visits will she make? What is the price elasticity of demand for office visits at this point? Suppose a health insurance plan is instituted that pays for one-third of each office visit. How would this affect the quantity and the demand elasticity at the new equilibrium?Explanation / Answer
per office cost is MC which is $30.
now to find equilibrium place MR=MC
MR= dTR/dq =d(80-10q)q/dq = 80-20q
thus
80-20q=30
q=2.5 times
she will visot 2.5 times.
and price will be 80-25 = 55
at this equilibrium elasticity is
e= dq/dp *p/q = -0.1 * 55/2.5 = -0.2
with insurance MC Becomes 30 - 30/3= 20
again put MR = MC
80-20q= 20
q= 3 visits
at price of 80-(10*3)= $50.
new elasticity
e= -0.1 * (50/3) = 1.6
after insurance the demand becomes elastoc earlier it was inelastic.
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