Lee is a rational consumer with complete health insurance (no copayments or deductibles). He will use...

Lee is a rational consumer with complete health insurance (no copayments or deductibles). He will use medical care up to the point at which his: total benefit is equal to the cost of care paid by the insurance provider, OR marginal benefit is zero? Or maybe he will use medical care up to the point his marginal benefit is equal to the marginal cost of care paid by the insurance provider, OR total benefit is equal to zero?

Expert Solution

He will use medical care up to the point his marginal benefits equal is equal to marginal cost of care paid by the insurance provider. This is because any rational market player will act in this way(where marginal benefits equal marginal costs). In this case, marginal cost is the cost of insurance premium that has to be paid. If Lee uses his entire insurance in one go, then again for the next time he will have to accumulate more premium. Therefore, it is always rational for him to use up the insurance up to a point where marginal benefit from insurance equals the marginal cost.

Rahul Sunny answered 2 years ago

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