Question

5. What are economic rents? How did we distinguish “natural” vs. “appropriable” rents? How do doctors “appropriate rents”? Does this explain why MDs have done better than hospitals economically? What does this say about which hospital behavior model is probably correct?

Answer 1

Economic rents is classified as the excess rent received by owner which surpasses the economic necessary amount.

Quasi rent value which is in excess of its salvage value is termed as an appropriable rent. Natural rent implies to when free gifts of nature are received naturally.

Doctors charge exorbitantly higher for critical diseases when supply of physicians is low and thus appropriate rents by charging premium.

This is sobecause MDs get premium prices and surge prices as they work for multiple hospitals and eventually are better off than hospitals by charging appropriable rents.

This suggests that Paul Redisch model is correct which states when physicians are low in supply the maximum revenues take place when ARP=MRP.