The marginal cost of a physician visit is $40. In a county with 50 physicians, the local medical society negotiated a rate of $90. Previously, any physician who offered discounts to an insurer or a patient could be cited for unethical behavior, be expelled from the medical society, and lose admitting privileges to the county’s sole hospital. But having lost an antitrust lawsuit, the medical society has agreed to stop enforcing its prohibitions against discounting, to allow any physician with a valid license to be a member of the medical society, and to stop linking admitting privileges to medical society membership.

a. The price elasticity of demand for physicians’ services is −0.18. What price maximizes profits for the individual physicians in the county?

b. If all the physicians act independently, will their incomes go up or down?

c. Is there any way the physicians could legally act to sustain a price of $90?