Question

The Good Works General Hospital has a local monopoly in the sale of hospital services in its market area. Its product demand curve is p = 30 – 0.4x, where p is the price of a hospital day and x is the number of hospital days per year at Good Works. Good Works is also the only employer of professional nurses in its market area. It faces a supply of nurse labor of w = 5 + 0.9E, where w is the nurse hourly wage, and E is the full-time-equivalent of nurses employed by Good Works. Assume each nurse can monitor four patient rooms per hour (with one patient per room) and Good Works is a profit maximizer. Then how many professional nurses should Good Works employ? At what hourly wage? What price should Good Works charge for a hospital day?

Answer 1