Chapter 4: Pages 92-93, Exercise #4
a. If Mrs. Siegal can only choose one alternative, and if she wants to maximize the most healthy days per dollar that she gets, which option will she choose?
b. If the price of a pill increases to $3, which option will she choose?
Alternative 1
If Mrs. Siegal decides to visit the physiotherapist, she will lose her wages and will have to incur the billed by the physiotherapist. Thus, cost incurred by visiting the physiotherapist will be given by the following equation
cost incurred in the visit=Wages lost per hour*time spent+ cost of physiotherapist visit
=20 dollars per hour*2 hours+50 dollars=$40+$50=$90The visit to the physiotherapist provides 10 healthy days per month, thus calculating the number of healthy days per dollar is give by the following equation
healthy days per dollar=number of healthy dayscost incurred during the visit
healthy days per dollar=1090=0.11 days per dollarAlternative 2
Pills treatment cost per month is calculated as
=0.5 dollars*30 pills=15 dollars per month
Using pills provides 6 healthy days per month, thus calculating for the number of healthy days per the cost incurred through using the pill is as below
healthy days per dollar=number of healthy dayscost incurred in using pill treatment
healthy days per dollar=615=0.4 days per dollarComparing alternative one and alternative two based on the number of healthy days per the dollar, alternative two, the pill treatment is the best option as it reduces the cost incurred in the treatment.b)
Increasing the price of the pills to $3 will mean that pill treatment cost will increase thus,
3 dollars*30 pills=90 dollars per monthCalculating for the number of healthy days per the cost incurred
healthy days per dollar=690=0.0667 days per dollarAlternative 1, the visit to the physiotherapist will be recommended in this case
Chapter 5: Page 119, Exercise #2
Sweetgrass Radiology Labs has a fixed amount of radiology equipment. The laboratory can hire any number of radiology technicians per hour to produce radiographs, which are displayed on a screen. The relationship between the number of technicians hired per hour, and the number of radiographs produced per hour is shown in the following table. Show the total and marginal products and indicate at each level of production whether the production function exhibits increasing, constant, or diminishing marginal productivity.
Solution
This represents a diminishing marginal productivityChapter 6: Pages 143, Exercise #4
The following is a cost function for clinic visits in a small inner city clinic:
a. Determine the marginal cost for each level of output.
b. If the price per visit is given to be $25, at what level of visits will the maximum profit position be? What are the profits at this level? What is the quantity supplied?
c. If the price per visit increases to $45, what will be the quantity supplied (assuming maximizing profits)?
The following is a cost function for clinic visits in a small inner city clinic:
- Determine the marginal cost for each level of output.
- If the price per visit is given to be $25, at what level of visits will the maximum profit position be? What are the profits at this level? What is the quantity supplied?
- If the price per visit increases to $45, what will be the quantity supplied (assuming maximizing profits)?
Solution
- The maximum profit will be at 3 visits. The profit will be given as
$25*3-45=30
Quantity supplied will be 3.
- At $45 the maximum profits will be at 5 visits and the profit made will be given by
$45*5-115=110
References
Drummond, M. F. (2005). Methods for the economic evaluation of health care programmes (3rd
Ed.). Oxford: Oxford University Press.
Jacobs, P., & Rapoport, J. (2004). The economics of health and medical care (5th Ed.). Sudbury,
MA: Jones and Bartlett Publishers.
