Suppose a hospital is planning about how many patients to treat over the next two years. One keyfactor the hospital needs to consider in its planning is that hospitals that see many patients in oneyear have lower costs of care in subsequent years. Let p be the price of hospital care, let 91 bethe number of patients the hospital treats in year one, let q2 be the number of patients the hospitaltreats in year two, and let c₁ and c₂ be the hospital's per-patient cost in years one and two. Thehospital's profits over the two year period are:II = (pic₁)91 + (p2 - c2)92The hospital takes p1 and p2 as fixed and they choose q1 and q2 to maximize profits, II.(1)1. Suppose, as a warm up exercise, that there is no learning by doing, and that the unit costfunctions are as follows: c₁ = 21 and c2 = 92. Is the cost of caring for patients increasingor decreasing in the number of patients seen? Derive the supply function in periods one andtwo for the hospital. [Hint: Substitute the unit cost functions into the profit functions andtake the derivative of II with respect to 91 and 92].

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Answered: Suppose a hospital is planning about…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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