Hen 368 lecture 8 production and costs
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Hen 368 lecture 8 production and costs

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Hen 368 lecture 8 production and costs Hen 368 lecture 8 production and costs Presentation Transcript

  • Health EconomicsLecture 8Production and Costs
  • NursesTotalProductMarginalProduct∆TP÷∆NAverageProductTP÷NTotalCostMarginalCost∆TC÷∆NAverageCostTC÷NTotalProfitTP-TCMarginalProfitMP-MCAverageProfitTPr÷N1 2 2 2 3 3 1 -1 -1 12 6 4 3 5 2 2.5 1 2 0.53 12 6 4 8 3 2.67 4 3 1.334 15 3 3.75 12 4 3 3 -1 0.755 14 -1 2.8 20 8 2.5 -6 -9 0.3Productivity versus Cost
  • NursesTotalProductMarginalProduct∆TP÷∆NAverageProductTP÷NTotalCostMarginalCost∆TC÷∆NAverageCostTC÷NTotalProfitTP-TCMarginalProfitMP-MCAverageProfitTPr÷N1 2 32 6 53 12 84 15 125 14 20Productivity versus Cost
  • 051015201 2 3 4 5Total Product Total Cost
  • 051015201 2 3 4 5Total Product Total Cost
  • -2024681 2 3 4 5Marginal Product Marginal Cost
  • -2024681 2 3 4 5Marginal Product Marginal Cost
  • -5-4-3-2-10123451 2 3 4 5Total Profit
  • RuleMaximize ProfitsNOT RevenueSell less and make more
  • RuleWatch marginal profit(marginal revenue -marginal cost)
  • RuleAs long as marginalrevenue is greater thanmarginal cost, then keepgoing.
  • Maximize ProfitsAs long as marginalrevenue is greater thanmarginal cost, then keepgoing.
  • Hospital ProductionPhysiciansNursesOther StaffBedsOther Stuff
  • CostsExplicitImplicitOpportunity Costs
  • CostsFixedVariableBuildingNurses
  • CostsShort RunLong RunAt least one input is fixedAll inputs are variable
  • CostsSunk CostsCannot recover
  • CostsTransaction CostsProduce yourself orcontract outOutsourcing
  • Economies of ScopeWhen resources can beshared between relatedoutputs.
  • Economies of ScaleIncrease output more thanincreasing costBigger is more profitable
  • RememberIt’s not just price orproductivityIt’s productivity divided byprice
  • Ali FahadWage 50 100Productivity 10 25Wage ÷Productivity5 4
  • AverageCostsQuantityScaleEconomiesof ScaleDiseconomiesof ScaleThe biggeryou get, thelower yourcostsThe biggeryou get, thehigher yourcosts