Suppose that Hospital 1 faces demand and marginal revenue curves given by

P₁= 200 - 2Q₁MR₁= 200 - 4Q₁

A second hospital enters the market, and the competition changes the demand curve facing Hospital 1 to:

P'1 = 100 - Q'1 MR'1 = 100 - 2Q'1

where Q is quantity demanded of hospital services, P is price, and MR is marginal revenue. Assume marginal cost is constant at $20. The competition __________ the quantity produced and __________ the price charged by Hospital 1.

Question 18 options:

reduces; reduces

increases; increases

increases; decreases

decreases; increases