S. Klepper, Economics 73-100, Fall 2011
In recent years, hospitals have been merging in many localities. In a number of cities, all the hospitals have merged into one, enabling the lone remaining hospital to behave as a monopolist. This has led workers in these cities to try to extract higher wages from their employer. Suppose that workers have been able to extract wage increases that have caused total variable costs to rise by 10% at every level of output in hospitals that monopolize their local markets.
Which of the following statements correctly describe the effects of the wage increases in monopolized hospital markets? Mark true for a correct statement and false for an incorrect one and provide explanations for each of your answers.
_____1. The market demand curve for hospital service will shift to the left.
_____2. The marginal cost curve of hospitals will increase by 10% at every level of output
_____3. The price of hospital services will increase.
_____4. The total quantity of hospital services consumed will decline by 10%.
_____5. The total expenditures on hospital services will increase by 10%.