Besides altruism, there are economic reasons a physician would see Medicaid patients (and accept a capitated flat fee per patient). If we assume that a physician is the only one practicing in an area (i.e. they are a physician monopolist and can set their prices), they can either choose to see i) all private patients or ii) a mix of public (Medicaid) and private patients.

1. In the first (left) figure below, for the physician monopolist, what does the shaded area represent? Calculate this value and interpret it for this problem.

2. The second figure (right) shows a situation where the physician monopolist can price discriminate. What is the price charged for the private patient? What is the price charged for the Medicaid patient?

3. What does the shaded area in the second figure (right) below represent? Calculate this value and interpret for this problem.

4. Do these analyses suggest that it would be profitable (let's ignore costs for now) for a physician monopolist to see a mix of private and Medicaid patients? (Hint: You can calculate the revenue for each scenario.)

Price Price MC P1=12 Perix -10 MRprix priv = 10 D P2=8 MRerix MC -MRpuk Quantity Q = 8 Q =12 Quantity