1. In a monopolistically competitive market, suppose the demand can be summarized by the equation:
P = 100 - 0.5Q
MR = 100-Q
and the marginal cost equals the average costs at $10 per unit.
a. Calculate the quantity brought to the market by the monopolist.
b. Suppose that the local government is concerned with efficiency and has the power to regulate prices. What price would the government charge? How much profit would monopolist make at this price? Why would it be difficult in practice to adopt this solution in the health care industry?
c. Calculate the deadweight loss to society from monopoly.
2. Consider an industry with six firms with the following market shares.
Firm A – 21%
Firm B – 20%
Firm C – 20%
Firm D – 18%
Firm E – 11%
Firm F – 10%.
a. Compute the four-firm concentration ratio.
b. What is the value of HHI? According to DOJ Guidelines, is this a highly concentrated market?
c. Suppose Firm E proposes to merge with Firm F. The government argues that the merger would constitute monopoly power, but the two hospitals disagree.
i. Provide a clear argument in favor of hospitals’ position.
ii. Provide a clear argument in favor of antitrust position.
3. When your governor took office, 100,000 children in your state were eligible for Medicaid and 200,000 children were not. Now, thanks to a large expansion of Medicaid, 150,000 children are eligible for Medicaid and 150,000 children are not. Your governor boasts that, under her watch, “the number of children without access to health are fell by one-quarter.” Is this a valid statement to make? Why or why not?
4.What effects on hospital use would you most expect from the prospective payment sys-tem ( PPS) as developed using diagnosis- related groups ( DRGs) as the method of hospital payment? What effects might this have on patients’ health outcomes? ( Hint: The relevant catchphrase is “ sicker and quicker.”)
5.Many doctors claim that the malpractice insurance system is purely random, striking good doctors and bad doctors with equal propensity. What evidence do you know that supports or refutes this assertion?
6. In 1981, the federal government passed a law that gave permission to states to change the structure of their Medicaid program. States could now, if they wished, require Medicaid beneficiaries to enroll in a Medicaid “Managed Care Organization” (MCO), so long as the Medicaid recipients were offered a choice of several plans. Medicaid recipients would be required to receive their medical care only through their MCO. These MCOs would receive fixed, regular payments from the state and, in return, would cover the medical expenses of their Medicaid enrollees.
a. Using what you know about Medicaid and managed care, list several reasons why policymakers might support the requirement that Medicaid beneficiaries enroll in an MCO.
b. Again, applying what you know about Medicaid and managed care, how do you think that this requirement would affect the decision of people who are eligible to enroll in Medicaid? Be specific about which Medicaid eligibles are likely to change or not change their take-up decision.
c. How might this requirement affect overall access to care for Medicaid enrollees?
7.Chapter 10 discussed a problem of “ market failure” in health insurance resulting from the inability of insurers to classify correctly the “ types” of individuals seeking to buy insur-ance from them and their response. Does mandating “ universal insurance” ( i. e., requiring every individual to have a health insurance policy from some source) solve this problem completely, or is some other step ( e. g., requiring community rating) necessary?