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, and the public sector faces a fixed regulated government price.

Suppose government changes its policy to reduce the reimbursement (i.e. the government price) to hospitals.

Use the economic model of price discrimination to show graphically what happens to (a) price faced by privately insured patients, (b) access for privately insured patients (i.e. the number of privately insured patients accepted by the hospital) and (c) access for public patients (i.e. the number of public patients accepted by the hospital).