Figure 11-4

Physicians have two types of patients: private patients who pay directly or with insurance, and Medicaid patients whose care is paid for by the state. Physicians must lower prices to attract more private patients, but they can add unlimited Medicaid patients at a constant price. The situation facing Dr. Casey is depicted in Figure 11-4. Units of medical service (say, number of patients × number of visits)are measured on the horizontal axis. How many units of medical service will Dr. Casey deliver?
A)OA
B)OB
C)OC
D)OD

Question

Figure 11-4

Physicians have two types of patients: private patients who pay directly or with insurance, and Medicaid patients whose care is paid for by the state. Physicians must lower prices to attract more private patients, but they can add unlimited Medicaid patients at a constant price. The situation facing Dr. Casey is depicted in Figure 11-4. Units of medical service (say, number of patients × number of visits)are measured on the horizontal axis. How many units of medical service will Dr. Casey deliver?
A)OA 
B)OB 
C)OC 
D)OD

Quizplus · Accepted Answer

The point where the marginal revenue (MR) of treating private patients intersects with the marginal cost (MC) of providing the service represents the profit-maximizing level of production for private patients, which is point A. However, since Medicaid patients can be treated at a constant price, there is no need for the physician to consider the MC of treating Medicaid patients. Thus, the quantity of Medicaid patients will simply be the difference between the total quantity of patients (point D) and the quantity of private patients (point A). Therefore, Dr. Casey will deliver OC units of medical service, which corresponds to the quantity of Medicaid patients.

Figure 11-4 Physicians Have Two Types of Patients: Private Patients Who Pay