Economies and Diseconomies of Scale and Scope Essay
Order ID 53563633773 Type Essay Writer Level Masters Style APA Sources/References 4 Perfect Number of Pages to Order 5-10 Pages
Economies and Diseconomies of Scale and Scope Essay
6.1 Hospitals are thought to be subject to economies and diseconomies of scale and scope. What is meant by economies/diseconomies of scale and scope? What are sources of scale economies/diseconomies and scope economies/diseconomies in hospital settings? List and discuss up to three each for scale and scope economies.
6.2 Assume the hospital is a monopolist with a demand function given by p = 404 – 2x, where p is price of hospital care and x is the quantity of hospital care, and a cost function given by C = 300 + 4x + 8×2, where C is total cost. Compute marginal cost and average cost. In addition, calculate the hospital’s profit-maximizing output, price, revenue, and profit.
6.3 Now assume that the hospital is a monopolist with a demand function that incorporates quality of care as well as quantity. Quality enters into both the demand and cost functions according to p = 100 – 3x + 4√y and C = 4 x2 + 10x + y, where p is the price of hospital care, x is the quantity of hospital care, y is the quality of hospital care, and C is total cost. Compute the hospital ’s profit-maximizing output, quality, price, revenue, and profit.
6.4 Suppose that a hospital has a production function of the type Lnx = γ + αlnS + βlnB, where x is the quantity of output, S is the level of hospital services (e.g., radiographs, laboratory tests, patient physical therapy sessions), and B is number of hospital beds; γ, α, and β are parameters. The hospital buys S at price p S and B at price pB. a. Compute the hospital’s marginal product and its average product. b. If regulators force the hospital to decrease the amount of B by 10 percent, what must the hospital do to maintain quantity x? c. If the hospital maintains quantity x, what will be the effect of the regulation on total hospital expenditures? Explain your answer.
6.5 As described in the chapter, in Newhouse’s model, the hospital maximizes utility, which depends on levels of quantity and quality of care, subject to a break-even constraint (price equals average cost). Use this model to analyze the effects of the following exogenous changes in the hospital ’s production possibility curve—that is, the hospital quantity-quality frontier (as shown in fig. 6.3)— and the hospital’s optimal choices of quantity and quality of care (as shown in fig. 6.4). a. an increase in the wage rate paid to the hospital’s employees; b. an increase in the number of persons with health insurance coverage in the hospital’s market area; c. implementation of a fixed dollar subsidy per unit of hospital care by the city government.
6.6 Based on the Pauly-Reddish model, analyze the effects of the following exogenous changes on the optimal number of physicians on a hospital’s medical staff (as shown in fig. 6.6). a. an increase in the wage rate of the hospital’s employees; b. an increase in the number of persons with health insurance coverage in the hospital’s market area; c. implementation of a fixed dollar subsidy per unit of hospital care by the city government.
6.7 In some settings, physicians are employed on a fixed salary basis by the hospital. In others, physicians’ function as independent entrepreneurs and bill for care they deliver to hospitalized patients separately from the hospital’s bill for its ser-vices. Describe three differences that you would expect to arise under these distinct employment/compensation arrangements for physicians.
6.8 Suppose there are two hospitals in town, Adam Hospital and Brown Hospital. Both hospitals face similar demand and cost functions. Thus, using the terminology of the Newhouse model, both hospitals have a similar production possibility curve. However, utility functions differ between these two hospitals. The boss of Adam Hospital focuses on increasing access to health care in the community and hence places a higher value on providing a high quantity of hospital care. By contrast, the boss of Brown Hospital focuses on increasing the quality of health care in the community and hence places a higher value on adopting the new medical technology. a.
Show graphically how these two hospitals make choices of optimal quantity and quality (given their different objective functions). Which hospital is more likely to become a large hospital (in terms of hospital beds)? Explain your answer. b. Assume that the local government imposes an entry restriction to limit expansion of hospital beds in the community. Specifically, the government requires a certificate of need if a hospital adds more than 100 new beds. Which hospital is more likely to be affected by such entry regulation, and why is this so? c. Assume that the local government adopts a regulation to restrict adoption of new medical technology. Specifically, the government prohibits small hospitals (e.g., those hospitals with 250 beds or fewer) from adopting new and expensive medical technology. Which hospital is more likely to be affected by this entry regulation? Explain your answer.
6.9 Assume there is only one hospital in a small town. This hospital faces a demand function given by p = 304 – 2x, where p is the price of hospital care and x is the quantity of hospital care, and a cost function given by C = 500 + 4x + 8 x2, where C is total cost. a. Suppose the local government imposes price regulation on hospitals that freezes the price of hospital care at 250. Show the effects of this price ceiling on the hospital’s quantity of care and its revenue and profit. Be sure to indicate what the values of quantity, revenue, and profit would be in the absence of such regulation. b.
If the local government were to further lower the maximum price that the hospital can charge to patients to 240, compute the effect of this new price ceiling on the hospital’s quantity of care and its revenue and profit, compared to the older, higher price ceiling. Will this hospital remain in the market or will it exit? Explain your answer.
6.10 Suppose Town A and Town Beach have four hospitals. The following table gives the bed size and output of each hospital.
Town A Town A Town B Town B Size (No. Output (Annual No. Size (No. Output (Annual No. Hospitals of Beds) of Patient Discharges) of Beds) of Patient Discharges) A 250 8,000 100 2,200 B 250 7,300 50 1,100 C 250 6,400 500 16,000 D 250 5,400 350 10,000
Based on the above information, what is the Herfindahl-Hirschman Index (HHI) for each town? Which market (Town A or Town B) is more concentrated? Does your answer depend on how you measure hospital market shares?
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