QUESTION 1 5 points Consider a health insurance market. The market has many insurers so |hat each insurance company offers insurance at [he fair insurance premium. Each consumer has utility function, U (X) = 1/ X and has an initial wealth of $200. Consumers have access to a (magical) gym that reduces their probability of needing to go to the doctor from 90% to 10%. Agym membership costs $6. Atrip to the doctor costs $120. Suppose insurance companies charge the fair insurance premium which assumes all consumers go to the gym. This fair insurance premium is $ 12 v and the insurance company makes a prot of$ 0 v per consumer. Suppose insurance companies continue to charge the fair insurance premium that assumes all consumers go to the gym: but now charges a copay of $15 for a doctor's visit. The insurance company now makes a profit of$ 1.5 v per consumer. By implementing a copay, the insurance company resolves v the moral hazard v problem. -108 -96 -90 -45 VO 1.5 2.7 12 15 108 120 does not resolve resolves adverse selection moral hazard