Suppose a hospital is planning about how many patients to treat over the next two years. One key factor the hospital needs to consider in its planning is that hospitals that see many patients in one year have lower costs of care in subsequent years. Let p be the price of hospital care, let 91 be the number of patients the hospital treats in year one, let q2 be the number of patients the hospital treats in year two, and let c₁ and c₂ be the hospital's per-patient cost in years one and two. The hospital's profits over the two year period are: II = (pic₁)91 + (p2 - c2)92 The hospital takes p1 and p2 as fixed and they choose q1 and q2 to maximize profits, II. (1) 1. Suppose, as a warm up exercise, that there is no learning by doing, and that the unit cost functions are as follows: c₁ = 21 and c2 = 92. Is the cost of caring for patients increasing or decreasing in the number of patients seen? Derive the supply function in periods one and two for the hospital. [Hint: Substitute the unit cost functions into the profit functions and take the derivative of II with respect to 91 and 92].

EBK HEALTH ECONOMICS AND POLICY
7th Edition
ISBN:9781337668279
Author:Henderson
Publisher:Henderson
Chapter4: Economic Evaluation In Health Care
Section: Chapter Questions
Problem 8QAP
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Suppose a hospital is planning about how many patients to treat over the next two years. One key
factor the hospital needs to consider in its planning is that hospitals that see many patients in one
year have lower costs of care in subsequent years. Let p be the price of hospital care, let 91 be
the number of patients the hospital treats in year one, let q2 be the number of patients the hospital
treats in year two, and let c₁ and c₂ be the hospital's per-patient cost in years one and two. The
hospital's profits over the two year period are:
II = (pic₁)91 + (p2 - c2)92
The hospital takes p1 and p2 as fixed and they choose q1 and q2 to maximize profits, II.
(1)
1. Suppose, as a warm up exercise, that there is no learning by doing, and that the unit cost
functions are as follows: c₁ = 21 and c2 = 92. Is the cost of caring for patients increasing
or decreasing in the number of patients seen? Derive the supply function in periods one and
two for the hospital. [Hint: Substitute the unit cost functions into the profit functions and
take the derivative of II with respect to 91 and 92].
Transcribed Image Text:Suppose a hospital is planning about how many patients to treat over the next two years. One key factor the hospital needs to consider in its planning is that hospitals that see many patients in one year have lower costs of care in subsequent years. Let p be the price of hospital care, let 91 be the number of patients the hospital treats in year one, let q2 be the number of patients the hospital treats in year two, and let c₁ and c₂ be the hospital's per-patient cost in years one and two. The hospital's profits over the two year period are: II = (pic₁)91 + (p2 - c2)92 The hospital takes p1 and p2 as fixed and they choose q1 and q2 to maximize profits, II. (1) 1. Suppose, as a warm up exercise, that there is no learning by doing, and that the unit cost functions are as follows: c₁ = 21 and c2 = 92. Is the cost of caring for patients increasing or decreasing in the number of patients seen? Derive the supply function in periods one and two for the hospital. [Hint: Substitute the unit cost functions into the profit functions and take the derivative of II with respect to 91 and 92].
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