23.4* Business and Policy Application: Second Degree Price Discrimination in Health Insurance Markets: In exercise 23.3, we analyzed the case of a monopoly health insurance provider. We now extend the analysis to second degree price discrimination, with x again denoting the degree of health insurance coverage.

A. Consider the same set-up as in part A of exercise 23.3, and assume there is an equal number of type 1 and type 2 consumers.

a. Begin again by drawing a graph with the individual demands for the two types, d 1

and d 2

, as well as the marginal costs. Indicate the efficient levels of health insurance x*

1 and x*

2 for the two types.