1. Mercy Hospital provides healthcare at subsidized prices and is so popular that patients wait in long queues. Revenue is $75 million a year, while the cost of providing service is $100 million a year. A government subsidy covers the difference. Some critics argue that, since Mercy Hospital is losing money, it should be shut down. The management of Mercy Hospital argues that the long waiting times justify a larger government subsidy to expand staff and facilities.

(a) What is Mercy Hospital's economic profit?

(b) What is the minimum benefit that Mercy Hospital must provide to add value?

(c) Do you agree that Mercy Hospital should be shut down?

(d) What information do you need to decide whether Mercy Hospital should expand or reduce service?