chapter 6 Flashcards
T or F
Understanding economic behavior in the health care is straightforward because of the simple nature of health care as a service or product.
F
Understanding economic behavior in the health care is not straightforward because of the complex nature of health care as a service or product
Production Concept in Health Care
- What services (goods) should be given priority?
- How much of which services (goods) should be produced first?
The essence of Production Concept in Health Care is to buy ______, use them to produce outputs, and eventually sell the _______.
inputs, output
What is the transformation of inputs into outputs.
- Production
- These are the factors of production (Land, Labor, Capital, Entrepreneurship)
Inputs of Production
Factors of Production
(Land, Labor, Capital, Entrepreneurship)
What is the result that has been created by the inputs
- Output
Two Types of Outputs
- Goods
- Services
T or F
The quality and quantity of inputs have a direct impact on the quality and quantity of output.
T
T or F
Output can also be input
T
EX: Fresh Graduates of Nursing Courses
Output can also be input
Classification of Factors of Production
- Fixed Factor
- Variable Factor
remains constant regardless of the volume of production.
Fixed factor
changes in accordance with the volume of production.
Variable factor
2 ASPECTS OF THE PRODUCTION DECISION
- The ability to Produce
- The willingness to produce
prescribed by resources availability (related to resource costs) and state of technology.
- The ability to Produce -
prescribed by the profit incentives (production benefits relative to production cost)
- The willingness to produce -
It is a technical name given to a relationship between quantities of various inputs used and the maximum output that can be produced with those inputs used per unit of time
THE PRODUCTION FUNCTION
THE PRODUCTION FUNCTION is a technical name given to a relationship between ____and _______ that can be produced with those inputs used per unit of time.
quantities of various inputs used and the maximum output
Production Function
Y=y(L,K) or Y=f(L,K)
the quantities of one or more production factors cannot be changed.
In the short-run
we will have fixed input(s)
short run
all factors of production can be changed.
LONG-RUN -
refers to the total amount of medical services or goods produced.
total product
What refers to the number of surgical procedure that can be ‘produced’ or performed given the fixed medical equipment and varying number of surgeons.
total product
It is defined as the output per unit of a particular product.
Average Product
It is obtained by dividing total product (TP) by its corresponding units of labor.
Average Product
Average Product Formula
AP= Total Product/ Number of labor Inputs
it measures the productivity of labor (surgeon) in terms of how much, on average, each surgeon can perform.
Average Product
It is the extra product or output added by 1 extra unit of that input while other inputs are held constant.
marginal product of input
Formula of Marginal Product
MP= change in Total Product/ Change in labor Input
It does not reach negative because total product does not have negative values.
Average product
the slope of the total product curve.
- Marginal Product (MPl)
It usually rises first, reaches its maximum, then begins to decline.
- Marginal Product (MPl)
When the _______reaches its saturation, marginal product is zero
total product curve
When the total product curve reaches its saturation, marginal product is _____
zero
at the declining portion of the total product, the marginal product is _______
negative.
-the average product increases as labor
increases;
When MP > AP
-the average product is constant;
When MP = AP
the average product will fall as labor input increases.
When MP < AP
The _________is a theory in economics that predicts that after some optimal level of capacity is reached, adding an additional factor of production will actually result in smaller increases in output.
law of diminishing marginal returns
- it is usually used for short-run when one variable is fixed.
law of diminishing marginal returns
- As more and more input such as labor (surgeon) is added to the fixed amount of equipment (operating apparatus) the labor has less and less of other factors to with.
Law of diminishing marginal returns
- The operating room gets crowded, the operating equipment is insufficient and the job done (operations performed) becomes less insignificant.
Law of diminishing marginal returns
starts at the origin until the highest portion of the average product.
Stage 1 of production
goes from the highest portion of the average product until marginal product is zero.
Stage II of production
begins where marginal product is zero until its negative range.
Stage III of production
-Greek word, ‘iso’ meaning _________and ‘quant’ is short for _____
‘equal’ , quantity.
is a curve which shows all possible combinations of inputs that yield the same level of output.
Isoquant
A shift of an isoquant to the right means that there is _________in production, while a shift to the left denotes ________ in production.
an increase , a decline
CHARACTERISTICS OF ISOQUANT
- Isoquants further from the origin represent greater output levels.
- Isoquants do not intersect.
- Isoquants are usually convex to the origin.
- Isoquants are negatively sloped.
Isoquants further from the origin represent ____.
greater output levels
Isoquants do not _____
intersect.
. Isoquants are usually _____ to the origin.
convex
This manifest that the slope of the isoquant gets flatter down along the curve.
. Isoquants are usually convex to the origin.
Slope of isoquant
Diminishing Marginal Rate of Technical Substitution (DMRTS)
Isoquants are _______sloped.
negatively
it specifies how much units of capital (K) that a firm should give up to obtain additional units of labor (L)
Marginal Rate of Technical Substitution (MRTS)
MRTS formula
MRTS= - Change in K/ Change in L
or
MPL/ MPk
-Greek word, ‘iso’ meaning ‘equal’ and ‘cost’
ISOCOST
is a straight line showing the different combinations of capital (K) and labor (L) that a firm (hospital) can purchase or hire given his total outlay and the factor prices.
Isocost
An isocost that shifts to the _____ indicates an increase in total outlay. While a_______denotes a decrease in total outlay.
right, leftward shift
This is shown by the point of tangency between isocost and isoquant.
Optimal Choice of Input Combination
