Consider the behavior of a not-for-profit hospital maximizing some objective function which may or may not depend on actual profit:
(a) Explain in one sentence the constraint facing this hospital’s maximization problem.
(b) Draw this constraint graphically.
(c) If access to insurance expands (all else equal), how would this effect the hospital’s constraint? Draw this graphically. How would the hospital 1 respond in terms of the quantity of care provided?
(d) Explain how the hospital’s constraint will change in response to the entry of a new, high-quality competitor. Show graphically how the incumbent hospital would be less likely to offer this high quality care.