Question
A patient with an annual income of $30,000 can use their income to buy Zytiga (Z) at a price of $1,000 per dose and all
A patient with an annual income of $30,000 can use their income to buy "Zytiga" (Z) at a price of $1,000 per dose and "all other goods", G, at a price of $1 per unit.The patient has health insurance, which pays 0% of the price of Zytiga for the first 10 doses, and 80% of the price for any doses more than 10 (fractional doses are allowed).Assume the patient's utility over Zytiga and all other goods is given by: U(Z,G) = Z0.5*G0.5, with the MRS between Zytiga and other goods given by G/Z.
a. Use a diagram with Zytiga (Z) on the x-axis and units of G on the y-axis to plot the patient's budget constraint. Label the numeric values of the slope and the intercepts.
b. How many doses of Zytiga will the patient consume?
c. How much more (or less) would the patient be willing to pay for an insurance plan that covers 0% of the price of Zytiga for the first Y doses, and 60% of the price for any doses more than Y (fractional doses are again allowed)?
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