3. On October 30, 2017, the state of Virginia approved the merger of Wellmont Health System and Mountain States Health Alliance, following the state of Tennessee’s approval. This cleared the way for the two systems to form Ballad Health (Links to an external site.), the only provider of inpatient general acute care services in the Tri-Cities (Bristol-Kingsport-Johnson City) region of east Tennessee and southwest Virginia. Suppose that Ballad Health is the only supplier of inpatient general acute care in the Tri-Cities region and also the only employer of nurses in the region. (In other words, Ballad Health is a monopoly and a monopsony.) Suppose the demand for inpatient general acute care surgeries is q = 1,620 – p, where q is the number of surgeries demanded and p is the price of a surgery. In addition, assume that the only input needed for a surgery is nursing labor. (The surgeon’s services are billed separately.) Each nurse hired by Ballad Health supports 4 surgeries and this does not change regardless of how many nurses are hired. (In other words, Ballad Health’s “production” of surgeries is 4 times the number of nurses hired (i.e., q = 4L, where L is the number of nurses hired and q is the production of surgeries) and its marginal product of labor = 4.) Thus, if nurses are paid a wage of w, the marginal cost of producing one more surgery is w/4 for Ballad Health. Finally, assume that the supply of nurses is L = 5w, where L is the number of nurses supplying their labor for surgeries and w is the hourly wage for a nurse. (In other words, as the wage increases, more people in the Tri-Cities region will become nurses, according to the supply function L = 5w.) (Also, for both parts of this question, ignore any possible effects from health insurance.)
A) (20 points) As both a monopoly producer of surgeries and the only purchaser of nursing services in the Tri-Cities area (i.e., a monopsony of nursing labor), how many nurses will Ballad Health hire? What wage will Ballad Health offer nurses? (Hint: Solve the monopoly problem first. What is Ballad Health's demand for labor?)
B) (20 points) How many nurses would be hired if both the market for surgeries and the labor market for nurses were perfectly competitive? What would be the equilibrium wage of a nurse in that situation? Compare your answer to part (A). How do you think nurses would respond to this merger? What types of regulations or accommodations would they demand from the governments of Tennessee and Virginia in order to support this merger?
q= Number of surgeries. P = price of surgery. w = Wage for hour. L=Number of nurses supplying labour.
q=1620. where one nurse can supply for four surgeries. L=q/4=1620/4 = 405.
In order to support this merge its better to provide accommodation for orther state nurses. Equilibrium pay is needed to all. Extra pay (Hourly wage) If thay attend extra surgeries is needed.
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