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Learning Goal: I’m working on a micro economics test / quiz prep and need an explanation and answer to help me learn. The demand for an appendectomy at Highland Park (H) Hospital is a function of the price of the procedure at H and Evanston Northwestern Hospital (N): qH = 50 – 0.01PH + 0.005pN. The comparable demand function at N is qN = 500 – 0.01pN + 0.005pH. At each hospital the fixed cost of the procedure is $20,000 and the marginal cost is $2,000.
Use the product differentiated Bertrand model to analyze the prices the hospital set before the merger. Find the Nash equilibrium prices of the procedure at the two hospitals at the two hospitals.
After the merger, find the profit-maximizing monopoly prices of the procedure at each hospital. Include the effect-maximizing monopoly prices of the procedure at each hospital.
Does the merger result in increased prices? Explain
Requirements: Answer all parts due in 2 hours
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