Consider a Newhouse-Feldstein nonprofit hospital that maximizes U(Q,q) where Q=quantity and…

  1. Consider a Newhouse-Feldstein nonprofit hospital that maximizes U(Q,q) where Q=quantity and q=quality. Does the hospital operate efficiently?
  • For a correct answer, you will need to define efficiency and either state or derive the conditions for efficiency. Then determine whether the hospital is efficient.
  • You can assume the inverse demand function is P=P(Q) and the hospital has a zero-profit constraint.
  • You will need to add a production function to the model. The joint production function is F(Q,q,K,L)=0 where K=capital equipment and L=labor. The hospital hires capital and labor in competitive markets at unit prices of r and w, respectively.
  1. “Transactions cost’ and endowment effects’ are both explanations for why consumer demand may respond discontinuously to price(people keep making the same choices when the price of a good changes). In the context of the demand for Medicare Advantage health plans, can you think of a way empirically to distinguish between two explanations for discontinuous demand?
  2. The affordable Care act (ACA) requires that health insurance policies sold on state-based exchanges in 2014 be community rates (pooling equilibrium). The ACA also penalizes people who don’t buy insurance. Presumably, these are low riskers who would find the community-rated policies too costly. An alternative proposal is to tax low risks and subsidize high risks regardless whether they buy insurance, but sell insurance to each group at a fair price for their risk (separate equilibrium). Which policy is more efficient? Which policy is more likely to work in the marketplace?

– Be sure to state the assumptions about information in the

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Consider a Newhouse-Feldstein nonprofit hospital that maximizes U(Q,q) where Q=quantity and q=quality. Does the hospital operate efficiently? For a correct answer, you will need to define efficiency and either state or derive the conditions for efficiency. Then determine whether the hospital is efficient.You can assume the inverse demand function is P=P(Q) and the hospital has a zero-profit constraint.You will need to add a production function to the model. The joint production function is F(Q,q,K,L)=0 where K=capital equipment and L=labor. The hospital hires capital and labor in competitive markets at unit prices of r and w, respectively.“Transactions cost’ and endowment effects’ are both explanations for why consumer demand may respond discontinuously to price(people keep making the same choices when the price of a good changes). In the context of the demand for Medicare Advantage health plans, can you think of a way empirically to distinguish between two explanations for discontinuous demand?The affordable Care act (ACA) requires that health insurance policies sold on state-based exchanges in 2014 be community rates (pooling equilibrium). The ACA also penalizes people who don’t buy insurance. Presumably, these are low riskers who would find the community-rated policies too costly. An alternative proposal is to tax low risks and subsidize high risks regardless whether they buy insurance, but sell insurance to each group at a fair price for their risk (separate equilibrium). Which policy is more efficient? Which policy is more likely to work in the marketplace?- Be sure to state the assumptions about information in the insurance market.

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