Figure 11-4
-Since the Red Cross supplies 95 percent of the blood in the United States, it can be considered a monopolist.Assume that it, in fact, operates like a monopolist.The Red Cross currently charges hospitals and other users $21 for a pint of blood.In order to increase the supply of blood, the government offers the Red Cross a $10 million, lump-sum subsidy.How much more blood supply will the subsidy generate?

Question

Figure 11-4 
-Since the Red Cross supplies 95 percent of the blood in the United States, it can be considered a monopolist.Assume that it, in fact, operates like a monopolist.The Red Cross currently charges hospitals and other users $21 for a pint of blood.In order to increase the supply of blood, the government offers the Red Cross a $10 million, lump-sum subsidy.How much more blood supply will the subsidy generate?

Quizplus · Accepted Answer

A lump-sum subsidy does not affect the marginal cost or the price per unit of production for a monopolist like the Red Cross. Therefore, it does not incentivize them to increase the quantity supplied. The subsidy is a fixed amount, not dependent on the quantity produced or sold.

Figure 11-4 -Since the Red Cross Supplies 95 Percent of the Blood