Saturday, December 29, 2012

Doctor's Prices

Alzheimer's problem of the day.

Which of the following circumstances might affect the prices charged by a young doctor just out of medical school and why? a) The high cost of tongue depressors .b) The high cost of X-ray machines (assume that every doctor must have one X-ray machine in his office). c) The high cost of a medical education. d) The fact that this particular young doctor is heavily in debt due to student loans. e) The doctor’s discovery that his loan payments will be higher than he had expected. f) The fact that only a limited number of people are permitted to become doctors  g) An epidemic. h) The fact that this doctor has recently been sued for malpractice. Fortunately for him, the public is unaware of the lawsuit, but unfortunately for him, his insurance company is well aware of it and has raised his rates.  i) It becomes generally known that this doctor’s insurance company has raised his rates. j) Malpractice insurance rates for all doctors go up. k) The doctor in the office next door suffers fatal consequences when he attempts to remove his own appendix. l) The doctor decides to join a very expensive country club.

a. Would affect as it affects the amount that the doctor can supply.  b. Would not affect the price as it is a fixed cost.  c.  Would not affect the price as it is a sunk cost.  d.  Would not affect the price as it is a sunk cost.  e. Would not affect he price as it is a fixed cost, but would reduce his profit.  f. Would influence the price as the license acts as a barrier to entry.  g.  Would influence the price as the demand would shift to the right causing a higher price.  h. Would not affect the price as this is a fixed cost.  However, all relevant information is not included in the price and will change the price in the future as information becomes public. i) Would affect the price as there would be a change in demand that shifts the curve to the left.  j) Would not affect the price.  k) Would affect the price as the number of competitors decrease and he would be able to differentiate his product. l.) This would not affect the price.  If this doctor raises his prices then other doctors will be substituted for him.  This is not a relevant cost to the business.

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