Deck 1: An Introduction to the Economics of Medical Care

Question 1

Suppose you were hired to help a hospital set prices for a typical inpatient day.In this market,the hospital is a monopolist.The hospital faces a downward sloping demand curve where the inverse demand curve is ,the marginal revenue curve is equal to ,and marginal cost is constant at MC = $100 per day.What is the equilibrium price,quantity,and profit?

Answer 1

The profit-maximizing price and quantity for a monopolist is always found where marginal revenue is equal to marginal cost,MR = MC.In this case,
MR=MC
500-2Q=100
400=2Q
Q=200
Using this value,for quantity we can find the equilibrium price by plugging quantity into the demand curve.P=500-200=300.Profit = (P-MC)Q = (300-100)(200)= $40,000.

Question 2

Let the demand for physician visits have the following demand curve function,
where p is price and Q_d is quantity demand.Find the elasticity of demand at a price of $100.

Answer 2

The elasticity of demand asks: By what percentage does quantity change for a 1% change in price.A 1% change in price is equal to 1.Quantity at p = 100 is 500 office visits.Quantity at p = 101 is 495.

Question 3

In the graph above,the opportunity cost in defense dollars associated with moving toward more medical expenditures is

A)Increasing
B)Decreasing
C)Constant
D)Increasing then decreasing
E)Decreasing the increasing

Answer 3

A
The shape of the PPF curve states the opportunity cost in defense dollars is always increasing.

Question 4

Suppose the government institutes new regulations on physicians requiring physicians to take additional years of training before practicing medicine.What will happen to the wages and quantity of physicians?

A)Wages decrease;number of physicians increases
B)Wages increase;number of physicians increases
C)Wages decrease;number of physicians decreases
D)Wages increase;number of physicians decreases

Question 5

In the graph above,point D is

A)Attainable
B)Efficient
C)Both attainable and efficient
D)Neither attainable nor efficient

Question 6

In the graph above,point A is

A)Attainable
B)Efficient
C)Both attainable and efficient
D)Neither attainable nor efficient

Question 7

Suppose you are considering becoming a physician.Your current job has an annual salary of $100,000,but you hate your job.If offered a job as a physician for $90,000 you would be indifferent between your current job and this new job.What is your opportunity cost of staying at your job?

A)-$10,000
B)$10,000
C)$100,000
D)$90,000

Question 8

Compare and contrast Medicare and Medicaid.

Question 9

If the supply of registered nurses is Q_S = 40w and the demand for registered nurses is Q_d = 1000 - 10w,find the equilibrium hourly wage (w)the quantity of nurses.Next,find the equilibrium hourly wage the quantity if there is a minimum wage equal to $40.

Question 10

In the graph above,which point is not attainable?

A)Point A
B)Point B
C)Point C
D)Point D

Question 11

Supply curves are upward sloping because of

A)Law of increasing marginal cost
B)Law of diminishing marginal cost
C)Law of increasing marginal returns
D)Law of diminishing marginal returns

Question 12

In the graph above,the equilibrium price is regulated to equal P*.This price is a

A)Price ceiling and the market will have a shortage.
B)Price floor and the market will have a shortage.
C)Price ceiling and the market will have a surplus.
D)Price floor and the market will have a surplus.

Question 13

Suppose the federal government will no longer provide financial support to hospitals (causing some public hospitals to close),but will instead give that money directly to taxpayers in the form of a tax credit on medical expenditures.What will happen to the equilibrium price and the quantity of physician office visits?

A)Price uncertain;quantity will increase
B)Price uncertain;quantity will decrease
C)Price will increase;quantity uncertain
D)Price will decrease;quantity uncertain

Question 14

In a competitive market,firms will continue to produce until marginal cost is equal to

A)Price
B)Marginal revenue
C)Both a and b
D)Neither a and b

Question 15

Demand curves are downward sloping because of

A)Increasing marginal cost
B)Diminishing marginal cost
C)Increasing marginal benefit
D)Diminishing marginal benefit

Question 16

In the graph above,what is the opportunity cost in defense dollars associated with moving from point A to point B.

A)1
B)
C)
D)2

Question 17

Which of the following will not increase the demand for medical services?

A)An increase in income
B)New cost-saving technology in MRI machines
C)An outbreak of the flu
D)An increase in the population

Question 18

Suppose the demand for Lipitor is equal to
and the supply function for Lipitor is .Find the equilibrium price and quantity.

Question 19

There are two types of stents,coil and mesh,used when performing coronary angioplasty.These two stents are substitutes.If the price of coil stents increases,then

A)Supply of mesh stents increases
B)Supply of mesh stents decreases
C)Demand of mesh stents increases
D)Demand of mesh stents decreases

Question 20

In the graph above, the market for physician office visits is initially in equilibrium at point A. There is a dramatic increase in the number of physicians, which leads to

A)An increase in price and an increase in demand
B)An increase in price and an increase in the quantity demanded
C)A decrease in price and an increase in demand
D)A decrease in price and an increase in the quantity demanded.