According to the California Nurses Association, Tenet Healthcare hospitals mark

Question

According to the California Nurses Association, Tenet Healthcare hospitals mark up drugs substantially. At Tenet's Sierra Vista Regional Medical Center, drug prices are 1840.8% of the hospital's costs (Chuck Squatriglia and Tyche Hendricks, "Tenet Hiked Drug Prices, Study Finds More Than Double U.S. Average," San Francisco Chronicle, November 24,2002: Al, A10). Assuming Tenet is maximizing its profit, what is the elasticity of demand that Tenet believes it faces? The price elasticity of demand is . (round your answer to two decimal places) What is its Lemer Index? Its Lemer Index is Q). (round your answer to two decimal places)

Explanation / Answer

For a profit maximizing firm:

P = MC / [1+ (1/Ed)]

It's proof is as follows:

? = P(Q)Q

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