a nos price of a bed day and x is the number of patient days of care demanded. The fixed cost of adding a new bed is $150 and the total housekeeping cost is given by C = (B/3.5), 2 where B is the total number of beds. a. Suppose the hospital's market price is fixed at $250/bed day. What is the net marginal revenue to this hospital from an increase of one additional bed? b. With p fixed at 250, graph the net marginal revenue curve, with the number of beds on the x-axis and dollars on the y-axis. Explain its shape. c. Suppose the hospital is restricted from increasing its capacity for now, but it can set the price for each bed day. What is the optimal price level for the hospital if the hospital's objective is to maximize profits? Will the hospital fully use its current capacity in this case? d. Now suppose the hospital is considering building branch in another town. There is no existing hospital in that town. The cost of each new
a nos price of a bed day and x is the number of patient days of care demanded. The fixed cost of adding a new bed is $150 and the total housekeeping cost is given by C = (B/3.5), 2 where B is the total number of beds. a. Suppose the hospital's market price is fixed at $250/bed day. What is the net marginal revenue to this hospital from an increase of one additional bed? b. With p fixed at 250, graph the net marginal revenue curve, with the number of beds on the x-axis and dollars on the y-axis. Explain its shape. c. Suppose the hospital is restricted from increasing its capacity for now, but it can set the price for each bed day. What is the optimal price level for the hospital if the hospital's objective is to maximize profits? Will the hospital fully use its current capacity in this case? d. Now suppose the hospital is considering building branch in another town. There is no existing hospital in that town. The cost of each new
Chapter1: Making Economics Decisions
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Transcribed Image Text:2. Suppose a hospital has 500 beds. It faces a demand curve x = 1,200 -2p, where p is the
price of a bed day and x is the number of patient days of care demanded. The fixed cost
of adding a new bed is $150 and the total housekeeping cost is given by C = (B/3.5), 2
where B is the total number of beds.
a. Suppose the hospital's market price is fixed at $250/bed day. What is the net marginal
revenue to this hospital from an increase of one additional bed? b. With p fixed at 250,
graph the net marginal revenue curve, with the number of beds on the x-axis and dollars
on the y-axis. Explain its shape. c. Suppose the hospital is restricted from increasing its
capacity for now, but it can set the price for each bed day. What is the optimal price level
for the hospital if the hospital's objective is to maximize profits? Will the hospital fully
use its current capacity in this case? d. Now suppose the hospital is considering building a
branch in another town. There is no existing hospital in that town. The cost of each new
bed and housekeeping are the same as above, but the hospital's demand curve in this
other town is x = 800-1.2 p. What is its profit-maximizing price per bed day? How many
beds should the new hospital have?
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