Question one
The popularity of Cobb- Douglas function among the economists enable it to be easy to be worked with, and it can easily provide an explanation for substitution between the inputs and outputs of healthcare. On the other hand, the model of Cobb- Douglas usually omit the effects of interactions that exists between inputs and outputs, thus making this model to be unrealistic. According to Santias, other statistical models such as translog and the smooth models are restrictive and the application of this model in estimating the functional shapes of inputs are adhered to follow a parameter of a linear form. However, this does not fit closely to the economic data.
Question two
In this case, inputs and outputs, labor, and capital of the hospital are measured as the number of standardized admissions by using the complexity and the same units of production. Consequently, calculations are made by multiplying to admissions and the weight from diagnostic clusters. The data from the case study were collected from the ministry of information in Spain from 2002- 2008 (Santias, Cadarso-Suarez, Xose & Alvarez, 2010). However, the hospital decided to cluster the above data because of the data sizes that ranged from small to large.
Question three
All variables (Beds, Hospital, and FTEs) of the healthcare in Spain are important because (p) is less than 0.005 for translog and AM models. However, the annual variables are not significant due to changes in technology in production. Therefore, this outcome shows that the technicality in production changes is neutral to the output. Since the R2 and the outcome of AIC are fit for the models, the AM gives a better fit while comparing the Cobb- Douglas and translog models.
Question four
The difference is that there will be additional workers hired to obey the economic principles (Rodriguez, 2015). For instance, a competitive enterprise serves a large market, and such a market may have some effects on the prices that a firm is willing to pay for the goods. This implies that the business is a price taker, and the conditions for such a market will provide the pricing for the goods and salaries it pays to its employees.
References
Rodriguez, P. (2015). Marginal Product of Labor. University of Virginia: Darden Business Publishing.
Santias, F., Cadarso-Suarez, C., Xose, M., & Alvarez, R. (2010). Mathematical and Computer Modelling. Estimating Hospital Production Function through Flexible Regression Models, 1(54).
