As a member of the economics team for Well Street Urgent Care, your services are enlisted to
Question:
As a member of the economics team for Well Street Urgent Care, your services are enlisted to decide on the pricing and supply of digital x-ray provided at the firm’s urgent care clinics.
1. In a town in Michigan, Well Street Urgent Care is competing with an Orion-Oxford Urgent Care Center in Orion Charter Township. Due to lobbying by Well Street, there are significant barriers to medical facility entry in this town due to certificate of need laws. These laws require that any medical facility be approved by the state before it is built (these laws are real, by the way). As such, Well Street and Orion-Oxford compete in Cournot competition in this town to provide medical x-rays. The demand curve for medical x-rays in this town is Q=20-.4P and the marginal cost of giving an x-ray is $25 dollars which is the same for both firms. On the blank on the google form/answer sheet, write the Nash Equilibrium price for an x-ray and per firm quantity of x-rays given in this market.
2. Now say that you and Orion-Oxford Urgent Care consider coming together to form a cartel and collude. On the blank on the google form/answer sheet, write the equilibrium price and per firm quantity of x-rays that will prevail if the collusion is successful.
3. We know that profit per firm is higher in collusion than in Cournot. However, collusion is illegal. As such, Well Street Urgent Care will be fined (after making the collusion profit) $3 (sorry this is underwhelming) if they collude with Well Street Urgent Care. If the two firms don’t collude, they will compete in Cournot competition. Is the fine enough to stop the two firms from colluding? Explain on your answer sheet/google form.
Business Statistics A First Course
ISBN: 978-0321979018
7th edition
Authors: David M. Levine, Kathryn A. Szabat, David F. Stephan