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Problem Set 4

In a monopolistically competitive market, suppose the demand can be summarized by the equation:
P = 100 – 0.5Q
MR = 100-Q

and the marginal cost equals the average costs at $10 per unit.
Calculate the quantity brought to the market by the monopolist.
Suppose that the local government is concerned with efficiency and has the power to regulate prices. What price would the government charge? How much profit would monopolist make at this price? Why would it be difficult in practice to adopt this solution in the health care industry?
Calculate the deadweight loss to society from monopoly.

Consider an industry with six firms with the following market shares.
Firm A – 21%
Firm B – 20%
Firm C – 20%
Firm D – 18%
Firm E – 11%
Firm F – 10%.
Compute the four-firm concentration ratio.
What is the value of HHI? According to DOJ Guidelines, is this a highly concentrated market?
Suppose Firm E proposes to merge with Firm F. The government argues that the merger would constitute monopoly power, but the two hospitals disagree.
Provide a clear argument in favor of hospitals’ position.
Provide a clear argument in favor of antitrust position.

When your governor took office, 100,000 children in your state were eligible for Medicaid and 200,000 children were not. Now, thanks to a large expansion of Medicaid, 150,000 children are eligible for Medicaid and 150,000 children are not. Your governor boasts that, under her watch, “the number of children without access to health are fell by one-quarter.” Is this a valid statement to make? Why or why not?

What effects on hospital use would you most expect from the prospective payment sys-tem ( PPS) as developed using diagnosis- related groups ( DRGs) as the method of hospital payment? What effects might this have on patients’ health outcomes? ( Hint: The relevant catchphrase is “ sicker and quicker.”)

Many doctors claim that the malpractice insurance system is purely random, striking good…

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