Suppose there are two types of people: Healthy and Unhealthy. It costs more toinsure unhealthy people because they are likely to incur more medical bills.Suppose the marginal cost (MC) of providing an insurance policy is $1,000 for ahealthy person and $4,000 for an unhealthy person. Assume healthy people arewilling to pay $1,500 for health insurance, and unhealthy people are willing to pay$5,000. Suppose the insurance company charges P = MC so as to earn zero profit.
a) With complete information,...