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1. Duane’s demand function for medical care can be given by the function P = 1000...

1. Duane’s demand function for medical care can be given by the function P = 1000 – 2Qd. The marginal cost of medical care is constant and is equal to $100.

a. How many units of care will Duane demand without insurance?

b. How many units will he demand with full insurance? Would he purchase an insurance policy that had a deductible of $60,000 but then allowed him to purchase all the rest of the care he wanted/needed for free? Explain.

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Answer #1

a. Duane will demand that quantity of goods at which MR = MC

Since Price = MR,

1000 - 2Q = 100

1000 - 100 = 2Q

900 = 2Q

Q = 450 UNITS

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