1. Assume the following health insurance policy is being offered in the market:

• Health insurance covers a disease happening with a probability of .15 (15%)
• Payout if the disease occurs is full cost of the disease, which equals $50,000.

1. What is the expected cost of selling just one of these policies?
2. If expected profits are zero, what will be the price for this policy (if sold to one person)?
3. If an individual seeking to purchase this policy has $60,000 income in good health and $45,000 in bad health, what is the expected income for the individual?
4. What is the expected loss to the individual?
5. If the marginal cost of insurance to the individual is given by the expected loss, and the marginal benefit is given by the coverage, does the MB > MC of insuring this risk?