Consider the market for health insurance in whichthe average health care cost required for customers per year is distributed uniformly on the interval [5000,49000]. In other words C~U[5000,49000]. Each single customer knows his/her exact health care cost per year. Insurance companies, however, know the distribution of their customers health status but not the exact health status of a specific customer.

Assume that a specific insurance package paying C is worth C-1/4 C to the customer and C-1/2 C to the insurance company.

a)Determine the price range for a 20,000 dollarinsurance package which leads to a Pareto optimal exchange under complete information.

b) Determine the price under incomplete information, when customers know C and insurance companies do not.

c) Is the price biased? If so, is it biased upward or downward?

d) What is the main economic implication of the offered price under incomplete information in the health insurance market?