Study Question:
The state Medicaid agency has set a rate of $5.50 per visit for all Medicaid enrollees who visit a physician. Each physician also has private paying patients. The demand curve for each physician can be characterized as follows, and physicians can be regarded as individual monopolists.
Out of pocket price Quantity of visits demanded
$8 0
7 1
6 2
5 3
4 4
3 5
2 6
1 7
Each physician also has a cost schedule that can be characterized as follows:
Quantity of visits provided Total cost
0 $5
1 7
2 11
3 17
4 25
5 35
6 47
1. If each physician is a profit maximizing provider, how many visits will he/she provide to public and private patients?
2. What will the number of visits provided be if the Medicaid Agency lowers its rate to $3 per visit, but the demand remains the same?