In Exercise 1, if the firm must act as a perfect competitor, in the long run what will happen to equilibrium price and equilibrium output?  Consistent with Figure 12-2, assume that the FFS price was...

In Exercise 1, if the firm must act as a perfect competitor, in

the long run what will happen to equilibrium price and

equilibrium output?

 Consistent with Figure 12-2, assume that the FFS price

was $100 per visit and the average patient made eight

visits per year. A competing managed care organization

came in and charged $80 per visit, providing seven visits

per year.

(a) Calculate the change in total expenditures.

(b) Graph the FFS and the managed care market equilibria as was done in Figure 12-2. What do our findings

suggest about demand for managed care compared to

demand for FFS care?