Suppose that hospital A’s output is measured by numbers of admissions and the market price for hospital admissions is regulated by the government. Assume that the regulated market price for an admission is $1500. Hospital A has no fixed costs, and the average variable cost for the hospital is $2500.
a. Draw the average cost, average variable cost, marginal cost and average fixed cost curves for this hospital. Explain and show your work.
b. Assume that the hospital is for-profit hospital. Explain the output decision of the hospital and calculate the optimum number of admissions for this hospital.
c. Now assume that the hospital is an output maximizer rather than profit maximizer. Explain the output decision of the hospital, and calculate the optimum output.
d. Suppose that the government provides $12000 subsidy to the hospital. Explain and calculate the impact of this subsidy on optimum output for (i). a profit maximizer hospital (1 point) (ii). an output maximizer hospital.
e. Now assume that the government provides $1000 fixed subsidy plus $750 per admission. Explain and calculate the impact of this subsidy on optimum output for
(i). a profit maximizer hospital.
(ii). an output maximizer hospital.