The figure below shows Ava's demand curve for days in the hospital. The marginal cost of an additional day in the hospital is $200. If Ava had first-dollar medical insurance, then she would choose to stay ______ day(s) in the hospital.
A)4
B)1
C)2

Question

The figure below shows Ava's demand curve for days in the hospital. The marginal cost of an additional day in the hospital is $200.  If Ava had first-dollar medical insurance, then she would choose to stay ______ day(s) in the hospital.
A)4 
B)1 
C)2

Quizplus · Accepted Answer

With first-dollar medical insurance, Ava does not have to pay anything out of pocket. Therefore, she will continue to stay in the hospital as long as the marginal benefit (the amount she values an additional day in the hospital) exceeds the marginal cost (which is $200). The intersection of the demand curve and the marginal cost curve occurs at 4 days in the hospital. This means that Ava would choose to stay 4 days in the hospital with first-dollar medical insurance.

The Figure Below Shows Ava's Demand Curve for Days in the Hospital