Elasticity of demand

Q. 4.  Mr. Langdon referred to a national study of copayment levels.  The important results of this study

are provided in Exhibit 3.

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a.     Calculate the price elasticity of demand for physician visits at each copayment level using the arc method. What does the data tell you about the price elasticity of demand for physician visits?  How does this information help Mr. Pasture in making his decision?

b.   Using the six months of data provided in the Excel file, simulate the profitability of the physician services department if copayments are increased to $20 per visit. Repeat your analysis using a copayment of $25 per visit.