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12:55 PM Tue Apr 28 ( 8% HW_8.docx 5. There are twenty low-risk people in a town and twenty high-risk people. A low-risk person has an expected cost of $600 in medical expenses each year and is willing to pay $1000 for medical insurance (they are risk averse and expenses are very large if they are ill). A high-risk person has an expected cost of $1,500 in medical expenses each year and is willing to pay $2,000 for medical insurance. Insurance companies are perfectly competitive so they are willing to offer insurance at a price where they break even - i.e. they will sell insurance at a price equal to the expected value of the amount they will pay out (a fair price). However, they are unable to tell who is high-risk and who is low-risk. (See chapter 16 and L24) a. If the firm offers insurance at $1000 who buys it? [1pt] b. Calculate the firms expected profits for insurance sold at $1000. [1pt] c. If the firm offers insurance at $2000 who buys it? [1pt ] d. Calculate the firms expected profits for insurance sold at $2000. [1pt] e. Can a firm offer a single price such that the firm makes non-negative profits? [This question is too easy] [1pt] f. Given your answers above and the fact that perfectly Dashboard and Calendar To Do Notifications Inbox12:55 PM Tue Apr 28 ( 8% HW_8.docx [Ipt] b. Calculate the firms expected profits for insurance sold at $1000. [1pt] c. If the firm offers insurance at $2000 who buys it? [1pt] d. Calculate the firms expected profits for insurance sold at $2000. [1pt] e. Can a firm offer a single price such that the firm makes non-negative profits? [This question is too easy] [1pt] f. Given your answers above and the fact that perfectly competitive firms will offer a "fair price" for insurance, who gets insurance and who doesn't. What kind of problem is this? [1pt] g. If the government forced everyone to buy insurance (like with the ACA), at what price would firms provide insurance?[1pt] h. Who would benefit and who would lose out from this policy? [1pt] Dashboard Bea Calendar To Do Notifications Inbox