Question

1. The supply of medical doctors cannot be expanded quickly because it takes years to train them. If a hospital wishes to enter a new market, does it face a barrier to entry? Explain your argument. [2 Marks]

2. Distinguish between zero profits and a price-cost margin that equals zero. [4 Marks]

Answer 1

Barrier are :

1) different type of rules and regulations, license etc ., which make initial processing slow.

2) to follow medical ethics and at the same time provide cost effective treatment to patients and providing fair salary to employees as well as competition with other old players ,thus these things make thing difficult to sustain.

3) bad practice of market making competition tougher as some illegal things related to medicene, illegal practionars and nepotism with political elements also intervene in this market.

Zero profit: when business has near-zero cost of entry to / exit from the industry means perfectly competition market conditions.

Price cost margin:it is the difference between price and marginal cost. It means normal price and competitive price differences is the price cost margin. If it zero it means that producer is in conditions of zero profit zero loss. It is depends up on price elasticity.