Figure 15.2 shows how increased competition can lead to a higher degree of inducement at point E 2 . This suggests that providers try to induce more usage to compensate for lower profi t margins. Suppose, however, that the physician ends up at a different point, call it E ′ 2 , where there is less inducement than at E1. Could convex indifference curves be drawn so that the change to the m ′ rate of profi t would lead to this reduced inducement?

Transcribed Image Text:

Net income A B 0 E E IE IE Inducement U mQ+ ml U m'Q + m'l I Figure 15.2 Physician's Response to Reduced Rate of Profit