Suppose a company has invented and patented a new effective drug to treat hay fever. The marginal cost of producing the drug is: MC = $4 . Without being covered in any insurance plan, the market demand is as follows: Qd = 800 -40P a. Suppose the drug is covered by a public health insurance plan with a co-insurance rate of 25% and everyone is eligible. What is the market demand under this insurance policy? What price should the company charge and what is the equilibrium quantity? a. Suppose now the public health insurer introduces the payment limit of $7.5 per unit of the drug; that is, the co-insurance rate of 25% applies if P less than or equal 10 (P<= 10), but the insurance only pays $7.5 per unit if P is greater than 10 P>10). Derive the new market demand. Under this new market demand, what price should the firm charge? Justify your answer.

Suppose a company has invented and patented a new effective drug to treat hay fever. The marginal cost of producing the drug is: MC = $4 . Without being covered in any insurance plan, the market demand is as follows: Qd = 800 -40P a. Suppose the drug is covered by a public health insurance plan with a co-insurance rate of 25% and everyone is eligible. What is the market demand under this insurance policy? What price should the company charge and what is the equilibrium quantity? a. Suppose now the public health insurer introduces the payment limit of $7.5 per unit of the drug; that is, the co-insurance rate of 25% applies if P less than or equal 10 (P<= 10), but the insurance only pays $7.5 per unit if P is greater than 10 P>10). Derive the new market demand. Under this new market demand, what price should the firm charge? Justify your answer.

EBK HEALTH ECONOMICS AND POLICY

7th Edition

ISBN:9781337668279

Author:Henderson

Publisher:Henderson

Chapter5: Demand For Health And Medical Care

Section: Chapter Questions

Problem 9QAP

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