As a dentist you find that a person\'s annual demand curve for appointments are

ID: 1181160 • Letter: A

Question

As a dentist you find that a person's annual demand curve for appointments are P=500-50Q

The marginal cost for your service is $50

There are three ways you could charge for your services

-Charge $50 each time someone makes an appointment

-Sell an annual insurance policy in which if the patient buys the policy each visit is a co-pay of $20

-Sell a lifetime insurance where when the patient buys the policy each visit is free

Questions:

1. What is the optimal price for these two insurance options

a. The Annual insurance policy

b. The lifetime insurance policy

2. What is your level of profit and how many visits do you expect per patient for these 3 options

Optimal Price:

Annual Insurance:

(500-20)(9.6)(0.5)=2304

Lifetime:

500*10*0.5=2500

Profit and Office Visit

Annual Insurance:

Q: 9.6 visits

Cost: 9.6*50=480

Revenue: 2304+9.6*20=2496

Profit: 2496-480=2016

Lifetime:

Q:10

Cost=10*50=500

Revenue:$2500

Profit:2500-500=2000

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