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Professor WTP MC David 6 4 Stephen 15 1 Graham 9 2 Joni 3 7 Table 1: Willingness to Pay and Marginal Costs for Faculty at Poudlard 7. (1 point) In this question, we assumed that the only costs of COVID 19 are the monetary costs of hospital bills. Do you think this is a, good assumption? If not, why not? And how might you answer change with a different asemmption? Please keep your answers short. 3 Selection in Insurance Markets (11 points) The employees of a local music store have been offered a supplemental insurance plan to cover the costs of illness if they get COVID 19 (assume that any other insurance they have is irrelevant for this question). The employees have different probabilities of getting sick and also have different levels of risk aversion (however they are all risk averse). There are four employees at the store. Table 1 gives their willingness to pay for the supplemental insurance and the marginal coats of insuring each of them (in hundreds of dollars). You will draw a graph in the style of Einav and Finkelstein by following the steps in the question. 1. (1 point) Plot an xeaxis with the number of faculty who have the supplemental COVID 19 insurance. \"That is Qmu? 2. (I point) Plot :1 yaxis and label it 3. (1 point) Plot the willingnesstopay curve (plot the 4 points and the line that passes through them) 4. (1 point) Plot the marginal cost. curve (plot the 4 points and the line that passes through them) 5. If only the faculty with the highest WTP gets supplemental insurance, then what are the average costs? 6. (1 point) If all of the employees get insurance, then what are the average costs? 7.. (1 point) Plot the average cost curve 8. {1 point) Is there adverse selection, advantageous selection, or neither? . . . . . .- III .II I! O l I: ' IIOII -I .I I l : E '5