Question

The state Medicaid agency has set a rate of $5.50 per visit for all Medicaid enrollees who visit a physician. Each physician also has private paying patients. The demand curve for each physician can be characterized as follows, and physicians can be regarded as individual monopolists.

Out of pocket price= $8, 7, 6, 5, 4, 3, 2, 1. Quantity of visits demanded= 0, 1, 2, 3, 4, 5, 6, 7. Each physician also has a cost schedule that can be characterized as follows: Quantity of visits provided= 0, 1, 2, 3, 4, 5, 6. Total cost= $5, 7, 11, 17, 25, 35, 47.

a. If each physician is a profit maximizing provider, how many visits will he/she provide to public and private patients?

b. What will the number of visits provided be if the Medicaid Agency lowers its rate to $3 per visit, but the demand remains the same?

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If monopolist physician charges $6 and provide 2 for private paying patients, then his profit will be $1 (=$12-$11), but MR:5>4:MC, so he can make more profit by providing more visits....

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