The discussion of price ceilings supposed that the medical industry faces increasing marginal costs of production. Suppose a for-profit, monopolistic hospital is experiencing economies of scale (i.e., downward-sloping average and marginal cost curves) in the relevant range. Show graphically.
Discuss in writing the problems associated with: A price ceiling set where the demand curve intersects the marginal cost curve. A price ceiling set where the demand curve intersects the average cost curve.
Think in terms of allocative efficiency and financial solvency.