In Figure 15.2, suppose that the initial profi t is $1 per unit of inducement ( m = 1). Suppose then, that increased competition lowers m from 1 to 0.5.

(a) Draw the new profi t line π = mQ o + mI .

(b) Demonstrate the case where the change in profi t increases the level of inducement.

(c) Demonstrate the case where the change in profi t decreases the level of inducement.

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Net income A B 0 B E E E, E Inducement U mQ+ ml U m'Q. + m'I I Figure 15.2 Physician's Response to Reduced Rate of Profit