Module 8 Flashcards
What does the HC production function measure?
It measures relationships between output (patients treated/activities performed)
Give an example of complements, perfect substitutes and imperfect substitutes.
Complements - hospital beds and surgeons
Perfect substitutes - grey and white hospital sheets
Imperfect substitutes - doctors and nurses
How does the cost function differ in the short and long run?
Short run - total cost is a function of quantity, price of labor, price of capital and has added fixed costs
Long run - no fixed costs are added
What are economies of scale in the context of healthcare production? And what is the least cost production?
Economies of scale - as LRAC (long run average cost) declines as output increases
Least cost production - output at the minimum of the LRAC curve
How do you calculate average cost?
AC = TC/C (C is cost per unit)
What are the 2 ways to measure hospital efficiency?
- Measuring outputs:
- heterogeneity of problems (“case-mix” problem)
- defining and measuring quality of care - Measuring inputs and input prices:
- lack of reliable measures
- lack of data on physicians’ input prices
What are the 2 types of hospital efficiency? Describe them.
- Technical efficiency - a firm is most technical efficient when it uses the least inputs to produce a given level of outputs (point has to be on the curve)
- Allocative efficiency - a firm is most allocative efficient when it uses the least cost combination of inputs to produce a given output:
- the least cost combination is where the isoquant is tangent to the isocost line (=budget restriction)
What are the 2 ways to measure RELATIVE efficiency?
- Non frontier studies: actual outputs or cost experiences for groups of firms are compared
- Frontier studies: actual outputs or firm costs are compared to the most efficient firms that are situated in a frontier
- DEA (Data Employment Analysis): frontier is a linear combination
- SFA (Stochastic Frontier Analysis): frontier is estimated
