2. The following demand and supply (MC) diagram represents the market for routin
ID: 1203141 • Letter: 2
Question
2. The following demand and supply (MC) diagram represents the market for routine outpatient appointments with a primary care physician. Di shows the annual demand for a typical patient when he or she has no insurance and must pay the entire price of the appointment out-of-pocket. D2 shows how the typical patient responds to the price when he or she has to pay only 50% out-of-pocket, with the rest covered by medical insurance. MC $100 Quantity The demand curve D2 is twice as high as Di at every quantity because with insurance, the real price would have to be twice as high for the out-of-pocket cost for the patient to be equal to what it would be without insurance. For example, without i would demand three appointments per year even if the price were $300 per appointment. Suppose the marginal cost of an appointment is $100 and the market is perfectly competitive. How many physician appointments will the typical patient have each year without and with insurance? the patient will demand three appointments per year at $150 each. However, with insurance the patient O two without insurance; three with insurance O three without insurance; four with insurance O four without insurance; five with insurance five without insurance; Six with insuranceExplanation / Answer
Q2. Following is the demand schedule for patients without insurance –
Price per appointment
Quantity of physician
Appointments
Marginal cost per
Appointment
300
0
100
250
1
100
200
2
100
150
3
100
100
4
100
50
5
100
0
6
100
The market is perfectly competitive. So, the efficient quantity of physician appointments without insurance will be the quantity at which price equals marginal cost.
As above table shows that price equals marginal cost when 4 physician appointments are demanded each year.
So, a typical patient without insurance will have 4 physician appointments each year.
Following is the demand schedule for patients with insurance –
Price per appointment
Quantity of physician
Appointments
Marginal cost per
Appointment
300
3
100
250
3.5
100
200
4
100
150
4.5
100
100
5
100
50
5.5
100
0
6
100
The market is perfectly competitive. So, the efficient quantity of physician appointments with insurance will be the quantity at which price equals marginal cost.
As above table shows that price equals marginal cost when 5 physician appointments are demanded each year.
So, a typical patient with insurance will have 5 physician appointments each year.
Hence, the correct answer is option (3).
Price per appointment
Quantity of physician
Appointments
Marginal cost per
Appointment
300
0
100
250
1
100
200
2
100
150
3
100
100
4
100
50
5
100
0
6
100
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