Midterm

Question 1

When outcomes are uncertain, managers need to:
•	describe the risks involved.
•	evaluate the risks involved.
•	manage the risks involved.
•	all of the above.

Answer 1

all of the above

Question 2

Which of the following statements is true?
• Focusing on incremental costs is a bad idea for managers.
• Fixed cost is the same thing as variable cost.
• Costs look the same from all perspectives.
• Incremental cost is the same thing as marginal cost.

Answer 2

Incremental cost is the same thing as marginal cost.

Question 3

Initially a pharmacy with a volume of 35,000 had fixed costs of $200,000 and variable costs of $140,000. After remodeling, its fixed costs fell to $100,000 even though its volume and variable costs were unchanged. As a result:

Answer 3

its average costs will be lower.

Question 4

Private insurers are testing
•	bundled payments.
•	accountable care organizations.
•	medical homes.
•	all of the above.

Answer 4

all of the above

Question 5

Why would a health system want to participate in a bundled payment trial?

Answer 5

To gain experience with a new payment system

Question 6

What risk does a health system bear when it agrees to a bundled payment for hip replacement?

Answer 6

The risk that its costs for hip replacement will be higher than expected

Question 7

The main idea of demand is that
•	sales increase at lower prices.
•	price does not affect sales.
•	medical products should be free.
•	sales do not vary if prices change.

Answer 7

sales increase at lower prices.

Question 8

A factor that would increase the demand for physician visits for allergies would be
• an increase in pollen.
• a reduction in the co-payment from $25 to $20.
• an increase in the price of over-the-counter allergy medicines.
• all of the above.

Answer 8

all of the above

Question 9

T or F: A change in the price of a competing product will shift demand.

Answer 9

true

Question 10

T or F: An increase in income will usually shift out the demand for a product.

Answer 10

true

Question 11

The percentage change in the quantity demanded associated with a 1 percent change in the price of a related product is the
•	cross-price elasticity.
•	income elasticity.
•	arc income elasticity.
•	price elasticity.

Answer 11

cross-price elasticity

Question 12

Optometrists’ visits are complements for contact lenses. So,
• the cross-price elasticity of optometry fees and contact lens sales will be positive.
• the cross-price elasticity of optometry fees and contact lens sales will be zero.
• the cross-price elasticity of optometry fees and contact lens sales will be negative.
• none of the above.

Answer 12

the cross-price elasticity of optometry fees and contact lens sales will be negative.

Question 13

The demand for medical care is usually inelastic because
• consumers have excellent information about costs and benefits of care.
• consumers perceive that there are few good substitutes for medical care.
• demand is unaffected by changes in price.
• all of the above.

Answer 13

consumers perceive that there are few good substitutes for medical care

Question 14

The price elasticity of demand is ˗0.20. Demand is
•	elastic.
•	unit elastic.
•	inelastic.
•	none of the above.

Answer 14

inelastic

Question 15

A factor that might influence a sales forecast would be
•	changes in rivals’ prices.
•	changes in demographics.
•	changes in prices for complements.
•	all of the above.

Answer 15

all of the above

Question 16

You have been given an inpatient days forecast for the coming year. The forecast details its assumptions about demographics, personal income, employment, and insurance coverage. You send it back, saying it lacks information about
•	the hospital’s marketing plan.
•	market conditions.
•	the appropriate time frame.
•	economic factors.

Answer 16

the hospital’s marketing plan

Question 17

T or F: Cost cutting cannot increase profits.

Answer 17

False

Question 18

T or F: Marginal revenue cannot be negative.

Answer 18

False

Question 19

Cost reductions
• often require improvements in care.
• often require the participation of physicians.
• often require aligning financial incentives for physicians and the organization.
• all of the above.

Answer 19

all of the above

Question 20

T or F: If increasing sales increases revenue more than cost, profits will rise.

Answer 20

True

Question 21

T or F: Managers of not-for-profit organizations do not need to worry about profits.

Answer 21

False

Question 22

T or F: Price discrimination is uncommon in healthcare.

Answer 22

False

Question 23

T or F: Using marginal cost pricing, you have set a price of $200. For the same service, you accept a Medicare payment of $175. You would not change what you charge other patients just because Medicare changed its payment.

Answer 23

True