Question

The focus of this assignment is on the production side of the Healthcare Market. Pricing and demand will be taken as exogenously determined. Your goal in each part of this assignment is to efficiently use inputs. This starts with what might be termed the short short-run, where all inputs are fixed but they can be reallocated to different purposes. It then moves to the short-run, where some inputs (e.g., labor) is variable, but other inputs (e.g., capital) are fixed. It concludes with long-run, where all inputs are variable.

Part 1

The clinic consists of 4 workers (A and B are doctors, and C and D are physician assistants) who share some or all of the following tasks: Performing Medical Procedures, Follow-ups, and Test. The data bellow gives their time per task, in minutes. Assume that each can work up to 6 hours per day (360 minutes) at these tasks, but no more. N/A means that the individual isn’t qualified to perform the medical procedure

Individual	Medical Procedures	Follow- ups	Routine Test
A	21	10	5
B	15	9	6
C	N/A	20	8
D	N/A	18	6

Each patient seen will ultimately need 1 medical procedure, 2 follow ups, and 3 tests

Question 1.

Assuming this Initial Scenario:

• For each medical procedure that A does, he also does 1 follow-up and 1 test.

• C is A’s assistant; for each medical procedure that A does, C does 1 follow-up and 2 tests.

• For each medical procedure that B does, she also does 1 follow-up and 1 test.

• D is B’s assistant; for each medical procedure that B does, D does 1 follow-up and 2 tests.

Calculate the number of ‘patient – equivalents’ that can be handled during a workday?

In solving for this, you must use a whole number; no partial patients are allowed. Some staff may be partially idle. You are reporting the aggregate for the four workers. Your score on this question will be based on how close you are to the correct answer without going over.

Hint: If you have 4 Medical procedures, 8 Follow-ups, and 12 tests, that counts for 4 ‘patients-equivalent’ so your answer would be 4.

Question 2

Reallocating Labor

If each worker is assigned to task so that total group output is maximized, how many ‘patient-equivalents’ can be seen per day? Use whole numbers when assigning tasks. Your score on this question will be based on how close you are to the maximum possible number of patients. You want to use the concept of comparative advantage.

Question 3

Clinic has excess physical capacity, so it expending by hiring additional labor. Two type of workers can be hired: Doctors (like A and B) or Physician Assistants (like C and D). The expected hourly cost of a Doctor is $150, while the hourly cost for physician assistant is $50. Assume that the clinic wants to see a total of 50 ‘patients-equivalents’ per day (this includes the production by current workers.) While the actual productivity of future hires is unknown, their assumed time per task (in minutes) is given in the following table.

	Medical Procedure	Follow-ups	Test
Doctors	20	10	6
Physician Assistant	N/A	20	8

In deciding who to hire, you may reallocate tasks of current employees. You goal is to reach 50 patient-equivalent goal at the lowest incremental cost. You may hire part-time workers, so you are not limited to a whole number of Doctors or Physician Assistants.

1. How many Doctors are hired?

2. How many Physician Assistant are hired?

3. What is the incremental daily cost (e.g., multiply the labor hours of your new hires by their hourly wages and sum)?

4. Calculate the ‘Average Incremental Cost’ of adding a new patient-equivalent (e.g., divide your answer for# 5 by the increase in the number of patients relative to #2).

5. Assuming that A and B are paid $150/hour and that C and D are paid $50/hour, calculate an overall average labor cost per patient-equivalent (e.g., for all 50 patients).

Answer 1

Question:1

Question 2:

Question 3:

Particulars	Number
Target patient equivalent per day	50
Existing patient equivalent per day	22
Incremental Patient equivalent required	28

Assumption: Newly Hired doctors and physicians will do same number of tests and follow up as of existing doctors and physicians. and working hours per day are also same.

a)

Time Required by newly hired Doctor per patient :
S.No	Particulars	Minutes
A	Medical Procedures	20
B	Follow up	10
C	Routine Test	6
	Time allocated by newly hired Doctor per patient (A+B+C)	36
Number of new doctors to be hired :
S.No	Particulars	Number
A	Incremental Patient equivalent required	28
B	Total Incremental time required ( Minutes)    ( 36 Min * 28 Patients)	1008
C	Total Number of Hours Required (B/60)	16.8
D	Working Hours Per Day	6
	Number of Doctors Required (C/D)	2.8

b)

Time Required by newly hired Physician per patient
S.No	Particulars	Minutes
A	Follow up	20
B	Routine Test (8 Min * 2 Tests )	16
	Time allocated by newly hired Doctor per patient :	36
Number of new Physicians to be hired :
S.No	Particulars	Number
A	Incremental Patient equivalent required	28
B	Total Incremental time required ( Minutes)    ( 36 Min * 28 Patients)	1008
C	Total Number of Hours Required (B/60)	16.8
D	Working Hours Per Day	6
	Number of Physicians Required (C/D)	2.8

c)

Incremental Daily Costs
S.No	Particulars	Number
A	Newly hired Doctrs hours per day	16.8 Hrs
B	Wage rate per Hr	$ 150
C	Daily wages for doctors( A*B)	$ 2520
D	Newly Hired physician hours per day	16.8 Hrs
E	Wage rate per Hr	$ 50
F	Daily wages for Physicians( D*E)	$ 840
G	Total Incremental costs per day ( C+F)	$3360

d)

Average Incremental Costs per day
S.No	Particulars	Number
A	Total Incremental costs per day	$3360
B	Total Incremental Patient Equivalents per day	28 Patients
	Average Incremental Costs per day ( A/B)	$120

e)

Overall Average cost per day
S.No	Particulars	Number
A	Existing Doctor's working hours per day ( 2 Doctors * 6 Hrs)	12 Hrs
B	Wage rate per Hr	$ 150
C	Daily wages for doctors( A*B)	$1800
D	Existing Physician's working hours per day ( 2 Doctors * 6 Hrs)	12 Hrs
E	Wage rate per Hr	$ 50
G	Daily wages for Physicians( D*E)	$ 600
H	Total Incremental costs per day	$3360
I	Overall Costs Per day ( C+G+H)	$5760
J	Number of Patients	50
K	Overall Average cost per day ( I/J )	$ 115.2