There exist both for-profit and non-profit hospitals. Any large metropolitan area is likely to have several hospitals of each type. Both types of hospitals have access to information which allows them to practice imperfect first-degree price discrimination. Non-profit hospitals need to generate enough revenue so that they are not losing money (i.e. their total revenue must equal total cost). Non-profit hospitals are oftentimes interested in serving low income groups by charging lower fees than they would for their higher income patients.

Question a

How could price discrimination help the nonprofit hospital further its social objectives (as compared to the prospect of having to charge a single price to all consumers)?

Group of answer choices

i).The non-profit must still cover their costs, but price discrimination could let them generate more revenue from higher income/more price inelastic groups so that they can extend services to lower income/more price elastic groups at lower prices.

ii).The non-profit must still cover their costs, but price discrimination could let them generate more revenue from higher income/more price elastic groups so that they can extend services to lower income/more price inelastic groups at lower prices.

Question b

Under what conditions would lead to a profit maximizing for-profit hospital to set the same prices as the nonprofit hospitals seeking to further the social objective of serving low income groups?

Group of answer choices

i) Competition that keeps profits close to zero (i.e. revenues equal costs); and 2) they are able to price discriminate according to elasticity; 3) higher income groups are more price elastic

ii) Competition that keeps profits close to zero (i.e. revenues equal costs); and 2) they charge everyone the same price;

iii) Competition that keeps profits close to zero (i.e. revenues equal costs); and 2) they are able to price discriminate according to elasticity; 3) higher income groups are more price inelastic

Question b

Most state governments have special rules to protect incumbent hospitals (both nonprofit and for-profit) from new competition, so that any new hospital (for-profit or not) cannot easily enter a region. Most states also exempt nonprofit hospitals from taxation, but do tax the for-profit hospitals.

How does these policies affect the conditions you considered in question 6?

Group of answer choices

i). The policies likely diminish market competition.

ii). The policies likely encourage the use of single pricing instead of price discrimination.

iii) The policies likely change the price elasticity of income groups.