You are a medical group manager. Some market research has suggested that the price elasticity of demand for the services of your physicians is −4.1. The marginal cost for the average unit of physician service in your group is approximately $536. A. Using the economic pricing model formula, calculate your profit-maximizing price for each unit of physician services. B. Suppose that your medical group is considering new contracts with two particular businesses to provide physician services to their employees. If the marginal cost for each service unit is the same as with the rest of your customers, but the price elasticity of demand from the first new business customers is −0.9, and the second group of business customers is −4.4, how would that change your profit-maximizing price for each of the new groups? Would you recommend that your medical group obtain contracts with both new groups, just one of them or none? Explain your reasoning. C. In order to maximize your profits, what specific strategy should you follow with the newly contracted group(s), and why? Explain.
You are a medical group manager. Some
A. Using the economic pricing model formula, calculate your profit-maximizing price for each unit of physician services.
B. Suppose that your medical group is considering new contracts with two particular businesses to provide physician services to their employees. If the marginal cost for each service unit is the same as with the rest of your customers, but the price elasticity of demand from the first new business customers is −0.9, and the second group of business customers is −4.4, how would that change your profit-maximizing price for each of the new groups? Would you recommend that your medical group obtain contracts with both new groups, just one of them or none? Explain your reasoning.
C. In order to maximize your profits, what specific strategy should you follow with the newly contracted group(s), and why? Explain.
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