In a town with exactly 1,000 residents, 60 percent of the residents make healthy choices and 40 percent of the residents consistently make unhealthy choices. The health insurance company in town cannot tell, in advance, who is healthy and who is unhealthy. A healthy person has an average of $600 in medical expenses each year and is willing to pay $800 for insurance. An unhealthy person has an average of $2,100 in medical expenses each year and is willing to pay $2,400 for insurance. The health insurance provider can offer insurance at only one price.

Required:
In equilibrium, the price of insurance will be at least what?

Equilibrium is the scenario where the economic factors are in an equal position. There is no factor that rises above the equilibrium point or falls below the equilibrium point.

Given information:

The average expense of a healthy person is $600 and the average expense of an unhealthy person is $2,100. Every person is interested to buy insurance are from $0 to $800, the unhealthy people would buy the insurance from $800 to $2,400, and lastly, No one would take up the insurance lies over and above $2,400

Computation of expected payment received to the company:

[tex]\rm\ Expected \rm\ payout \rm\ received = \rm\ Average \rm\ expense \rm\ of \rm\ a \rm\ healthy \rm\ person \times\ 60 \% \\+ \rm\ Average \rm\ expense \rm\ of \rm\ an \rm\ unhealthy \rm\ person \times\ 40 \%\\\rm\ Expected \rm\ payout \rm\ received =\$ 600 \times\ 60 \% + \$ 2,100 \times\ 40 \%\\\rm\ Expected \rm\ payout \rm\ received =\$ 360 + \$ $840\\\rm\ Expected \rm\ payout \rm\ received = \$1,200[/tex]

Now if an insurance company charges less than $1,200, it will incur a loss to the company, if it charges $1,200, then no one will acquire the insurance, and more than $1,200, cannot be charged by the company.

Therefore, the price of insurance at equilibrium is $2,100 equivalent to the last amount of expense paid to the person for the insurance.

Learn more about insurance prices at equilibrium in the mentioned link:

https://brainly.com/question/16287701

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