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Problem 1 Suppose you the owner of a hospital that treats patients in a particular city and that you are the only available hospital around. Your cost structure is such that the marginal cost of treating an extra patient is equal to MC(q)= (1/2) q What is the price you would charge if you only treated privately insured patients that have the following demand curve: P(q) = 150 – q Problem 2 Now suppose that 100 elderly people moved into that market and that they are covered by Medicare. This means that the marked demand you are facing will change right? Make a graph of the new demand in this market. If Medicare reimburses you 70 dollars for each elderly that you treat, how many privately insured patients will you receive and how many elderly Medicare patients What is the new price you are charging to the privately insured? Explain how you arrived to your answers! Problem 3 Suppose that the demand for pacemaker surgeries of a monopoly hospital is given by P=400-2Q and that the manufacturer of the pacemaker has a marginal cost of 10. Show that the vertical integration of manufacturing and surgery would be an efficiency improving change for society by solving the following steps: a. How many surgeries will be performed prior to vertical integration? b. What price will be charged to the hospitals by the pacemaker manufacturer prior to vertical integration? c. What will be the ultimate consumer price prior to vertical integration? d. If the manufacturer vertically integrates into its distribution channel, what quantity will be made available to the market and what will be the consumer price? e. In general, what is the term used to describe this phenomenon Problem 4 Suppose there is a nurse who is facing the following problem: he likes consumption C but he can only get one unit of consumption every time that he earns a dollar (1 dollar = 1 unit of C) He works as a nurse in a hospital and earns the minimum wage of 10 dollars per hour. This person has the liberty to work as many hours as he pleases but has only 24 x 30 = 720 hours available in a moth. Assume his preferences over consumption and leisure are capture by the following utility function U( l , c ) = l c Therfore the marginal utility of l is

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