mt1af07ans

# mt1af07ans - Econ 132 Fall 2007 Version A 1(a True(b...

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Econ 132 Fall 2007 FIRST MIDTERM EXAM (A): SOLUTIONS Cameron Version A 1.(a) True (b) False Hospital, physician, pharmaceutical drugs. (c) True Around 3,000,000 physicians and nurses (d) False Public share is actually higher, around 45% (e) False They are around 10% of \$7000 or \$700 (f) True Around 60% of the population. 2.(a) Expected health costs = 0.9 × 2,000 + 0.1 × 22,000 = 1800 + 2200 = \$4,000 . Insurance premium with 40% loading factor = 1.4 × \$4,000 = \$5,600 . (b) Standard deviation of mean = Sqrt(25,000.000 / 10,000) = 5,000/100 = 50. Probability of 0.95 of being within two standard deviations of mean. Here probability of 0.95 of being in interval 5,000 ± 2 × 50 = (4,900, 5,100) (c) George pays 500 + 0.1 × (5000 – 500) = 500 + 450 = \$950 . 3.(a) Welfare loss = 0.5 × 0 + 0.25 × triangle ABC + 0.25 × triangle DEF = 0.25 × 0.5 × (150-50) × MC + 0.25 × 0.5 × (300-200) × MC = 25 MC (b)(i) Rand conducted a randomized experiment

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## This note was uploaded on 07/19/2008 for the course ECON 132 taught by Professor Cameron during the Fall '07 term at UC Davis.

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mt1af07ans - Econ 132 Fall 2007 Version A 1(a True(b...

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