The hospital needs to diversify and as a result is considering introducing cosmetic surgery. The Board needs some guidance on potential pricing strategies.

The following information is available about the pricing of cosmetic operation (surgery) X.

P = a bQ

MR = a 2bQ

P = 5,900 30Q

P = price charged for an operation

a = the price at which customer demand Q is zero

b = is derived from change in price /change in customer demand

Q = customer demand for this operation

The latest market reports on the health sector have indicated that the average market price for this operation is 4,300. This is a highly competitive sector and one which is expected to grow by 35% by 2025.

• The Marginal Cost (Variable cost) of this operation for Healthy Hospital is budgeted to be 2,300.

• The surgical time available for this new operation is limited as recruitment of qualified personnel is a challenge and at present the capacity of the hospital would allow a maximum of 50 new operations.

Required

1. Using P=a-bQ, calculate the price that Healthy Hospital could charge for this new operation to maximise profitability and comment on the feasibility of your findings.
2. Provide analysis of two further alternative potential pricing strategies that the hospital could adopt for this operation if it decided to enter this new market.