Part A-
1. Economists use the concept of markets for the majority of the positive analysis conducted.
a. Explain the difficulties that exist with the industrial organization aspect of markets in general and the healthcare sector in specifically.
b. Given these significant difficulties, explain why economists continue to use the concept of markets in their analysis (i.e. why is the market concept so useful even with the problems you have identified).
2. Given the following information: P = 660 - 4Q and there is a constant average and marginal cost = $100. If the annual number of admissions can be used as a measure of output for a group of hospitals operating in the sameRGM.
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Hospital
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Number of Admissions (in thousands)
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Saving Grace Hospital
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4,000
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Mercy Me Hospital
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3,000
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Price Plus Hospital
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1,500
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HealthMart Hospital
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750
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Health Depot Hospital
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1,000
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Health R Us Hospital
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1,500
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a. Calculate the four-firm concentration ratio and the Herfindahl-Hirschman Index.
b. Determine the profit maximizing level of output and price.
c. Determine the level of profit.
d. Determine the output level the monopolist would produce and the price it would charge if the barrier to entry is removed.
e. Determine the value of the loss to society from producing the monopolist level of output.
f. BONUS: Categorize the type of market based on the degree of structural competition as measured by your answers to part A.
This will require you to find the DoJ ranges for market structure.
3. a. Graph and explain the difference between the collusive and competitive oligopoly models. Be sure to describe the implications of
each outcome from society's perspective
b. Identify and briefly explain the factors that would make is easier for a collusive agreement to be reached and maintained.
4. Briefly discuss the impact of product heterogeneity and the role/impacts of advertising in the context of market structure.
Part B-
1. Unions have improved wages and working conditions in many different employment settings. The decision to strike raises certain moral and ethical issues in medical care. The American Nurses' Association once considered the use of strikes unprofessional, but in 1968 rescinded that position and now views the strike threat as a necessary part of collective bargaining. The moral and ethical issues aside, what is the economic impact of union activity on professional labor market sectors in medical care (such as nursing)?
2. Although it is not likely to occur in the U.S. (primarily for normative reasons), explain the institutional and structural changes that should reduce the need for such extensive licensing for medical doctors (and other medical practitioners). You should approach this question from the standpoint that an individual has their medical degree but now has to acquire several additional licenses.
3. Identify the three factors that have been primarily responsible for the increase on expenditures on physician services over the last 15 years (approximately). Interestingly each is roughly responsible for an equal amount of the increase.
4. It has been suggested that society would benefit from the imposition of price controls (ceilings) on physician services. Analyze the likely economic impacts of such a policy action.
5. It is well known that significant practice variations exist between physicians when addressing a medical problem (even when that problem is easily identified).
a. Explain why such variations likely exist.
b. Explain how the practice of allowing physicians to patent and sell their practice procedures would impact the variation in practice procedures over time.
c. Explain how the process in part b could have additional benefits to the provision of medical care.