Suppose that an individual’s demand for the number of physician visits per year, Q, can be represented by the following equation: Q = 50-0.

Supposethat an individual’s demand for the number of physician visits per year, Q, canbe represented by the following equation: Q = 50–0.4 P, where P, the market price of an office visit, equals physician‘s constant marginal cost of $110. Determine the efficient number of office visits If the individual has no insurance.A)How many times would this fully insured person visit the physician?B) Calculate the welfare loss (DWL) associated with this insurance coverage.

AnswerP = MC = 110Q = 50 – 0.4PP = 125 – 2.5QNo insuranceAt equilibrium , P = MC125 – 2.5Q = 110Q = 6 , P = 110 , No of visit with No insurance = 6Full insuranceMC = 0At equilibrium…

 
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