The federal agency responsible for covering the cost of dental care for low-income seniors has set...

The federal agency responsible for covering the cost of dental care for low-income seniors has set a rate of $100 for various dental treatments. In addition to these seniors, dentists have patients who pay for their dental services. The demand curve for each dentist is shown below.

Out-of-Pocket Price	Quantity of Dental Treatments Demanded
$160	0
145	3
130	6
115	9
100	12
85	15
70	18

Each dentist also has a cost schedule, as shown below.

Quantity of Dental Treatments Demanded	Total Cost
0	$ 250
3	350
6	550
9	850
12	1,250
15	1,750
18	2,350

-If each dentist in this system works on a profit-maximizing basis, how many treatments will be provided to both the paying patients and to the federally funded seniors? (Show your work by tabulating appropriate columns for TR and TC, as well as for MR and MC.)

-What would the number of paying patients and federally funded seniors be if the federal funding agency raised its rate to $120 per treatment? (Show all your work.)

Solutions

Expert Solution

If each dentist in this system works on a profit-maximizing basis, how many treatments will be provided to both the paying patients and to the federally funded seniors? (Show your work by tabulating appropriate columns for TR and TC, as well as for MR and MC.)

The dentists maximize profit for the total number of patients where MR = MC for federally funded seniors = 100 i.e. 9 patients of which 7 will be paying patients and 2 will be federally funded patients. (MR=100 for 7.5 paying patients by solving for the equation of MR line, but patients can't be 7.5, so, dentists will take 7 paying patients)

What would the number of paying patients and federally funded seniors be if the federal funding agency raised its rate to $120 per treatment?

The dentists maximize profit for the total number of patients where MR = MC for federally funded seniors = 120 i.e. aprox. 11 patients of which 5 will be paying patients and 6 will be federally funded patients. (MR=120 for 5.5 paying patients by solving for the equation of MR line, but patients can't be 5.5, so, dentists will take 5 paying patients)

Ths cost shifting behavior of dentists is shown in following graph by Morrisey:

Rahul Sunny answered 2 years ago

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