When the administrator is considered the residual claimant, we said they have a utility function over quantity (N) and quality (S). In class, we discussed the case where multiple administrators (or trustees) have different indifference curves, and they have to vote on which is their preferred bundle. We said the median trustee's preferred bundle will be the winner.

a. Draw an indifference curve and budget line to show the preferred bundle for the median trustee.

b. Now, suppose a generous donor offers to give the hospital enough money to shift the budget line out, but only if the quality of patient care increases. Using the same graph as before, show how the new budget line would affect the preferred bundle chosen.

NOTE: an uploaded image below may help you answer the following questions.

D2L Lecture Slides - Chapter 8 - HE X + C gastate.view.usg.edu/d21/le/content/2751378/fullscreen/54787312/View Press (fn) F to exit full screen RAIS Update Our Scholarship E... My Drive - Google... Welcome to Your... iTutoring.com USCIS - home Create Account |... (1) Practice Dashb... (1) Practice Dashb... Cambridge Elevate Lecture Slides - Chapter 8 Print Download Open DocReader Q T V 16 of 25 + 70% 8.3 Where Does the Utility Function Come From? A Political Theory Model . Assume only two things that a hospital trustee cares about . Volume of patients treated (N, for number of patients treated). . Quality of service (S). . Assume that the board of trustees has only three members, and that they resolve any issues before them by majority-rule vote. Assume, each trustee (A, B, C) has a utility FIGURE 8.4 Preferences of three trustees of a not-for-profit hospital. function that can be shown as indifference curves (Figure 8.4). UB Budget line (BB) is curved because of B market forces that increase prices as more S of either good is purchased. S Assume that the board of trustees has only Sc three members, and that they resolve any issues before them by majority-rule vote- the median voter wins. NA NB Nc B 28 February 2023 16D2L Lecture Slides - Chapter 8 - HE X + C gastate.view.usg.edu/d21/le/content/2751378/fullscreen/54787312/View RAIS Update Our Scholarship E... My Drive - Google... Welcome to Your... iTutoring.com USCIS - home Create Account |... (1) Practice Dashb... (1) Practice Dashb... Cambridge Elevate Lecture Slides - Chapter 8 Print Download Open DocReader Q T V 18 of 25 + 70% 8.3 Where Does the Utility Function Come From? A Political Theory Model, continued . A targeted donation can alter the behavior of the hospital. . Suppose a generous donor offers to give the hospital enough money to shift the budget line from BB to B'B' but only if the number of patients treated is at least as large as N*. . B and C will accept the gift. FIGURE 8.5 A restricted gift improves Trustee B's utility. The hospital will move to a mix with S relatively more patients In general, changes that occur from U3 hospital to hospital should be occasional, rather than systematic, absent legal B UO U, changes. S'B SB N NB N* B B' 28 February 2023 18