[10 points] Assume that a hospital is a profit maximizing firm and is a local monopoly. It accepts a mix of privately insured and public patients (i.e. patients who are in public insurance programs such as Medicare and Medicaid).

The private sector faces a downward sloping demand curve Pp= 200 - Qp, and the public sector faces a fixed regulated government price Pg= 50.

a)(5 points) Suppose that the marginal cost curve is: MC = 20 + Q.

Use the economic model of price discrimination to find the profit-maximizing decisions below:

• What is the price faced by privately insured patients (Pp)?
• What is the number of privately insured patients accepted by the hospital (Qp)?
• What is the number of public patients accepted by the hospital (Qg)?

(Note: Please draw a graph to help you find the answer.)

b)(5 points) Re-calculate Pp, Qp, and Qgunder a different marginal cost curve: MC = 20 + 0.25Q.