Module 3, Part 1: Pricing in a Two-price Market

In this section, we’ll introduce a theoretical framework for studying hospital pricing decisions, focusing first on a simplified setting in which hospitals can set prices in one market and must take a fixed price in another market.

Objectives for this week

  • Use our two-price model to predict the effect of a change in public (e.g. Medicare or Medicaid) prices
  • Identify the minimum price at which public insurance patients lose access to care
  • Define cost-shifting and summarize the key aspects of the cost-shifting debate

Activities

  • Watch video on hospital billing and what we mean by hospital “price.”
  • Solve for the profit maximizing price and quantity for a monopolistically competitive firm. Worksheet available here.
  • Solve the practice problem on the two-price model. Worksheet available here.

Slides

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