2 Scenario Your client, InsureCorp, is an insurance company considering launching an 'income insur- ance' product in the nation of Motherland. Income insurance is a product that fully insures a household against changes in income caused by a major injury or illness. At present, no businesses are selling income insurance products in Motherland. Initial market research suggests that there are 15,000 households in Motherland interested in purchasing income insurance. Your client expects that the fixed cost of launching the income insurance product will be $25,000,000 per year, and that each policy issued to a customer will cost the company an additional $2,000 in sales commissions. 2.1 Your task Your client wants you to analyse the potential market for income insurance and report on the following: • What is the maximum price the company can charge a household for an income insurance policy? What is the expected profit (or loss) for the company if it becomes a monopoly provider of income insurance? • Is there a risk that rival insurance companies will also enter the market, selling identical income insurance products? If so, what would be the expected profit of your client? (You should assume that any competitors would face the same costs as your client.)
2 Scenario Your client, InsureCorp, is an insurance company considering launching an 'income insur- ance' product in the nation of Motherland. Income insurance is a product that fully insures a household against changes in income caused by a major injury or illness. At present, no businesses are selling income insurance products in Motherland. Initial market research suggests that there are 15,000 households in Motherland interested in purchasing income insurance. Your client expects that the fixed cost of launching the income insurance product will be $25,000,000 per year, and that each policy issued to a customer will cost the company an additional $2,000 in sales commissions. 2.1 Your task Your client wants you to analyse the potential market for income insurance and report on the following: • What is the maximum price the company can charge a household for an income insurance policy? What is the expected profit (or loss) for the company if it becomes a monopoly provider of income insurance? • Is there a risk that rival insurance companies will also enter the market, selling identical income insurance products? If so, what would be the expected profit of your client? (You should assume that any competitors would face the same costs as your client.)
Chapter7: The Market For Health Insurance
Section: Chapter Questions
Problem 11QAP
Related questions
Question
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 5 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics 2e
Economics
ISBN:
9781947172364
Author:
Steven A. Greenlaw; David Shapiro
Publisher:
OpenStax
Brief Principles of Macroeconomics (MindTap Cours…
Economics
ISBN:
9781337091985
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Principles of Economics 2e
Economics
ISBN:
9781947172364
Author:
Steven A. Greenlaw; David Shapiro
Publisher:
OpenStax
Brief Principles of Macroeconomics (MindTap Cours…
Economics
ISBN:
9781337091985
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Essentials of Economics (MindTap Course List)
Economics
ISBN:
9781337091992
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Principles of Macroeconomics (MindTap Course List)
Economics
ISBN:
9781305971509
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning