27 you serve 3000 private pay patients and 1000

27) You serve 3,000 private-pay patients and 1,000 health
maintenance organization members. Your fixed costs are $50,000 and
your incremental cost is $50. You currently charge private-pay patients
$75. If you have set prices correctly, you must face a price elasticity of
demand of
a. ˗ 4.25.
b. ˗ 4.00.
c. ˗ 3.00.
d. ˗ 2.75.
28) You serve 3,000 private-pay patients and 1,000 health
maintenance organization (HMO) members. Your fixed costs are
$50,000 and your incremental cost is $50. You currently charge
private-pay patients $75 and HMO members $60.
29) Using marginal cost pricing, you have set a price of $200. For the
same service, you accept a Medicare payment of $175. You would not
change what you charge other patients just because Medicare changed
its payment.
30) Your average and marginal cost is $300. You charge $500 and
serve 1,000 customers. You forecast sales of 1,200 at a price of $450.

31) Your average and marginal cost is $300. You charge $500 and
serve 1,000 customers. You can sell 200 more to a health maintenance
organization (HMO) if you agree to a price of $450.
a. Marginal revenue is $450 from the HMO deal.
b. Marginal revenue from the HMO deal is larger than marginal cost.
c. Selling to the HMO will increase profits.
d. All of the above
32) Your marginal cost is $100 and your price elasticity of demand is
˗ 3.00. You charge $150, but increasing your price to $175 should
increase profits.
33) Your firm spent $200,000,000 bringing a new drug to market. Each
pill costs $2 to manufacture. The price elasticity of demand is ˗ 3.00.
You should charge
34) You provide therapeutic massage services, focusing on stress
reduction services that are not covered by insurance. Your monthly
overhead is $2,000. You value your time at $20 per half hour (how long
a therapeutic massage takes). Supplies per massage cost $4. You
currently charge $75 per massage and have a monthly volume of 100
clients per month. Your trade journal says that a 5 percent reduction in
prices typically results in a 7.5 percent increase in volume. What would
happen to your volume, revenues, and profits if you cut your price to
$70? If you raised your price to $80?
35) Your firm spent $100 million developing a new drug. It has now
been approved for sale, and each pill costs $1 to manufacture. Your
market research suggests that the price elasticity of demand in the
general public is -1.1.
a. What price do you charge the public?
b. What would happen to profits if you charged twice as much?

c. What role does the $100 million in development costs play in
your pricing decision?