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Social Science Clinic => Economics => Topic started by: ksmithunr on Nov 23, 2022

Title: Limited AccessThe graph shows the demand for insurance by low-cost people (Dlow-cost), the demand ...
Post by: ksmithunr on Nov 23, 2022
Limited Access

The graph shows the demand for insurance by low-cost people (Dlow-cost), the demand for insurance by high-cost people (Dhigh-cost), the premium charged by insurance companies that expect to have a 50-50 mix of customers (P50-50) and the premium charged by insurance companies that expect to have more high-cost people than low-cost people (Ppessimistic).

Assume that P1=$5,500, P2=$8,250, Q1=20, Q2=60, and Q3=168. When the insurance company has an expectation of a 50-50 mix of customers, what percentage of actual customers are high-cost? What percentage are low-cost?
Please round your final answer to two decimal places.
◦ 11.90%, 10.64%
◦ 89.36%, 88.10%
◦ 89.36%, 10.64%
◦ 11.90%,88.10%
Title: Limited AccessThe graph shows the demand for insurance by low-cost people (Dlow-cost), the demand ...
Post by: ellie on Nov 23, 2022
89.36%, 10.64%

When the insurance company has an expectation of a 50-50 mix of customers, they will charge a premium of P1=$5,500. At this price, Q1=20 low-cost customers purchase the premium and Q3=168 high-cost customers purchase the premium for a total of customers.

The percentage of customers who are high-cost = 100*high-cost customers/total customers = 100*(168/188) = 89.36%.
The percentage of customers who are low-cost = 100*low-cost customers/total customers = 100*(20/188) = 10.64%.