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Homework answers / question archive / Under the following conditions, what are the equilibrium price and quantity of health care goods? There are many health care patients but only one private for-profit hospital

Under the following conditions, what are the equilibrium price and quantity of health care goods? There are many health care patients but only one private for-profit hospital

Marketing

Under the following conditions, what are the equilibrium price and quantity of health care goods? There are many health care patients but only one private for-profit hospital. Calculate the consumer surplus, producer surplus, total costs of care and dead weight loss. What are the implications of this model, compared to the model?

Demand Curve P=24-2Q

Marginal Revenue Curve P=24-4Q

Marginal Cost Curve P=2Q

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We first compute the equilibrium in a competitive market, where firms set price equal to marginal cost. In this market, the equilibrium quantity is given by:

  • 24 - 2Q = 2Q
  • 24 = 4Q
  • Q = 6

and the market price = 2 * 6 = 12.

Given that the current market has only one producer (hospital), the optimal quantity set by the hospital is such that the marginal revenue is equal to marginal cost, i.e.,

  • 24 - 4Q = 2Q
  • 24 = 6Q
  • Q = 4

and the equilibrium price = 24 - 2*4 = 16.

The deadweight loss = (6 - 4) *(16 - 12) / 2 = $4.

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