Medical malpractice is the third leading cause of death in the US. Because of recent judicial...

Medical malpractice is the third leading cause of death in the US. Because of recent judicial decisions, a medical doctor has decided to buy malpractice insurance, which we consider to be a fixed cost. Then:

	a.	The doctor should charge higher prices for her services to make up for the additional cost of the insurance
	b.	The doctor should leave her prices unchanged as this is a fixed cost
	c.	The doctor should charge lower prices to get more customers because the elasticity of demand is greater than one

Expert Solution

The correct answer is 'Option A'.

Since the doctor has to buy the malpractice insurance which adds to the total costs incurred by the doctor which in turn reduces the profit, the doctor must charge a higher price to make up for this additional cost of the insurance. So, the correct answer is 'Option A'.

Rahul Sunny answered 2 years ago

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