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The healthier an individual is the fewer days they are sick. The table below provides the relationship between the individuals health stock and sick days:

The healthier an individual is the fewer days they are sick. The table below provides the relationship between the individuals health stock and sick days:

Health Stock

Sick Days

Health Stock

Sick Days

3

100

9

13

4

70

10

9

5

50

11

6

6

35

12

4

7

26

13

3

8

19

The individual works and has a daily wage rate=$200. Moreover, the total cost (including both direct and opportunity costs) for the individual to increase his health stock by 1 unit is $4,000. If the real interest rate is 7% and the persons health stock depreciates at a rate of 8% per year:

a) What is the optimal stock of health for the person to have from a pure investment standpoint?

b) Show graphically how the optimal stock of health was found.

c) Suppose the person is diagnosed with a chronic disease and the persons health depreciates at a faster rate of 13% per year. What is the persons optimal stock of health?

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