Question

Suppose that, in the absence of insurance, the daily demand for visits to a clinic is given by Qd = 200 – 0.5P, where c is the coinsurance rate and P is the price charged by the clinic.

a. Calculate the quantity demanded when P is $100.

b. Calculate daily revenues when P is $100. Now assume that customers pay a coinsurance rate,

c. You will need to modify the demand function to account for the coinsurance. See page 105 of the Bernell text for some tips. c. Calculate the quantity demanded when P is $100 and the coinsurance rate is 0.4.

d. Calculate the daily revenue for the values given in (c). e. Calculate the quantity demanded when P is $100 and the coinsurance rate is 0.8.

f. Calculate the daily revenue for the values given in

(e). Assume the clinic’s daily capacity is 100 customers.

g. Calculate the price the clinic should set to exactly use its entire capacity when there is no insurance (i.e., the coinsurance rate is 1).

h. Calculate the price the clinic should set to exactly use its entire capacity when there is a coinsurance rate of 0.8

Answer 1

A) P = 100

Qd = 200-.5*100

= 150

B) Revenue , TR = P*Q

= 100*150

= $ 15,000

C) with coinsurance of .4, a

consumer has to pay only = .4*100 = $40

So demand Q` = 200-.5*40

= 180

D) TR = 100*180

= 18,000

E) customer pays, P = .8*100 = $ 80

Q`` = 200-.5*80

= 160

F)TR = 100*160

= $ 16,000

G) Q = 100

No insurance, then From demand curve

100 = 200-.5P

.5P = 100

P* = $ 200

H) with coinsurance of .8

P = $250, to use entire capacity = 100

using demand curve with coinsurance

Using demand curve & coinsurance rate to construct the demand curve with coinsurance