Suppose the market for physicians was perfectly competitive (though we know it i
ID: 1141018 • Letter: S
Question
Suppose the market for physicians was perfectly competitive (though we know it is not) and was represented by this graph and is currently operating at price of $80 for a visit. Answer the following questions.
The market is currently:
a.
Experiencing a surplus
(Continued from above) What will happen to the market?
(continued from above)
The new market price would then be:
f.$200
Continued from above)
Suppose a new, more efficient medical record system becomes available which lowers the marginal cost of a visit by $20. What would happen to the market in the long run?
(continued from above)
The new market price (after the new medical record system) would then be:
in equilibirumExplanation / Answer
(Question 1) Option (b)
Since equilibrium price is $100, current price of $80 being less than $100, there is an increase in quantity demanded but decrease in quantity supplied, which will cause a shortage.
(Question 2) Option (b)
As a result, suppliers will increase price and increase the quantity supplied. There will be an upward movement along supply curve.
(Question 3) Option (c)
Above process will continue until equilibrium is restored at equilibrium price of $100.
(Question 4) Option (b)
A fall in marginal cost by $20 will shift the supply curve rightward in long run, lowering price.
(Question 5) Option (b)
Therefore long run equilibrium price will be $(100 - 20) = $80.
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