answer questions
Governors State University
Department of Health Administration and Informatics
HLAD 4104 Health Care Economics
Problem set 4
Total: 20 Points
1. Identify a healthcare firm with market power. What characteristics led you to choose the
firm that you did? (5 points)
2. Given the following demand and cost conditions for a monopolistic medical practice,
predict the profit-maximizing price and quantity of services utilized. The cost conditions
are as follows: fixed costs are $200 and marginal costs are $70 per visit. (5 points)
Price ($) Quantity of Visits Demanded
300 0
270 1
240 2
210 3
180 4
150 5
120 6
3. A physician practice serves two groups of patients. One group, with limited insurance,
has demand represented by Demand Schedule A; the other, with comprehensive
insurance, has demand represented by Demand Schedule B in the following table. The
cost to produce a visit is $75. The practice wishes to price discriminate in order to
maximize profit. (1) What price should it charge each patient in group A? What price
should it charge each patient in group B? (3 points) (2) Compare price elasticities of
demand in two groups. Compare profit-maximizing price in two groups. What pattern did
you observe on the relationship between profit-maximizing prices and price elasticities of
demand? (2 points)
Demand Schedule A Demand Schedule B
Price ($) Number of Visits Price ($) Number of Visits
300 1 300 6
270 2 270 7
240 3 240 8
210 4 210 9
180 5 180 10
4. The following table shows hospitals operating in two cities and their annual number of
patient days in thousands:
City 1 City 2
Hospital Patient Days Hospital Patient Days
A 30 H 120
B 170 I 120
C 220 J 108
D 90 K 96
E 140 L 78
F 50 M 78
Compare the concentration of the markets in the two cities using the Herfindahl-
Hirschman Index (HHI). What did you learn about market concentrations in the two
cities? (5 points)
