1. The “optimal” level of output may be defined as that level of output where…
a. average benefit exceeds average cost.
b. total benefit equals total cost.
c. the marginal benefit of every unit purchased exceeds, or at least equals, its marginal cost.
2. A firm with a very substantial amount of “market power,” such as a monopoly, will most likely…
a. have less incentive to control production costs.
b. make far more efficient use of resources than a firm with no market power.
c. always be more beneficial for society as a whole than a smaller company.
3. Inoculation programs that administer vaccines against certain diseases such as small pox, polio, and whooping cough create…
a. public goods.
b. positive externalities in consumption.
c. nonrival goods.
d. external costs to society equal to the costs of the program.
4. Which of the following specifically describes the most common “agency problem” with respect to healthcare?
a. “Third-party payment” means that patients have little information about treatment costs.
b. A physician serves as the “agent” to whom a patient delegates most of the decision-making authority, trusting that the physician will always prioritize the patient’s best interests.
c. Health insurance agents routinely convince consumers to purchase less health insurance than they really need.
5. Which of the following statements about “UCR charges” is false?
a. The initialism, UCR, stands for “usual, customary, and reasonable.”
b. The “usual fee” was defined as the doctor’s median fee from the previous year.
c. The “customary fee” was defined by the fees charged by other doctors in the area.
d. “UCR charges” have been extraordinarily successful in their original intent to limit increases in doctors’ fees.
Solution:
1. Optimal output level occurs where the marginal cost curve intersects marginal revenue curve from down. in other words, when marginal cost equals marginal revenue. Thus, correct option is (C).
2. A firm with substantial market power will have less incentive to control production costs, as high production costs generating diseconomies of scale for any new entrant will restrict them from entering the market power and increase the competition. Only for the monopoly firm, such costs are manageable. So, correct potion is (A).
3. Inoculation programs and vaccinations are non-rivalrous (as all will be equally well off, not reducing one's utility or valuation of it by use by some other person) and non-exclubdale (as they are usually conducted at large scale for free, government incurs the costing) in nature. In other words, inoculation programs are public goods. So, correct option is (A).
4. The most common “agency problem” with respect to healthcare does not involve health insurance providers or the money mediators associated with 'third party payment' like government or similar insurance providers. It exists directly, in between the physician and patient itself, due to asymmetry of information about diseases, its cure and severity, and its medication. Thus, correct option is (B).
5. Usual, customary and reasonable (UCR) charges/fees is the fees which matches certain requirements and the prevailing cost in a particular geographic area. In this sense, the fees amount shall be decided based on the current (ongoing) charges in general, and not depend on previous months' or years' fee amounts. Thus, correct option is (B).
1. The “optimal” level of output may be defined as that level of output where… a....