Marginal+analysis+-&nbsp;When+is+there+over+provision+and+underprovision+of++health+care?

//MARGINAL ANALYSIS// A concept employed constantly in microeconomic theoryis that of the marginal change in some economic variable (such as quantity of a good produced or consumed), or even the ratio of the marginal change in one variable to the marginal change in another variable. A marginal change is a proportionally very small addition or subtraction to the total quantity of some variable. Marginal analysis is the analysis of the relationships between such changes in related economic variables. Important ideas developed in such analysis include marginal cost, marginal revenue, marginal product, marginal rate of substitution, marginal propensity //to save//, and so on. In microeconomic theory, "marginal" concepts are employed primarily to explicate various forms of "optimizing" behavior. (Consumers are seen as striving to maximize their utility or satisfaction. Firms are seen as striving to maximize their profits.) The maximum value of such a variable is found by identifying a value of the independent variable such that either a marginal increase or a marginal decrease from that value causes the value of the dependent variable being maximized to fall. The valuation of the benefits (utility) and the costs of any good is determined "at the margin." For the decision maker attempting to decide how many units of a good to consume or provide to the market, net total benefits (benefits minus costs) will always be maximized at that level of consumption (or provision to the market) where the marginal benefit derived from adding the last unit equals the marginal addition to total costs of producing or acquiring that last additional unit. //REAL LIFE SCENARIO// The marginal product is the change in total output associated with a one-unit change in the variable input. In other words, the marginal product is equal to the change in quantity of medical services divided by change in the variable input. Average productivity rises when marginal productivity exceeds average productivity. Average productivity falls when marginal productivity lies below average productivity. Marginal productivity equals average productivity when average productivity is maximized. In real life, we will use the example of the number of nurses in a hospital. The hospital gains a unit of "happiness" for every nurse gained. The hospital is very "happy" with the first nurses. However, after the hospital hires so many nurses, they may actually be a hinderance to the hospital. //QUESTIONS// 1. The hospital will hire nurses until: a. The marginal analysis determines that the hopsital has hired enough people b. The number of nurses matches the number of hospital beds c. The hospital is overflowing with people d. The administrator is tired of hiring people (ANSWER A.)

2. The main purpose of a decision maker using marginal analysis is to: a. Attempt to account for profits and loss b. Analyze the current training methods c. Maximize their utility or satisfaction d. Waste time in the office to attempt to look busy (ANSWER C.)

REFERENCES Chiang, Alpha C. //Fundamental Methods of Mathematical Economics//. New York: McGraw-Hill, 1984. Jensen, Gail A., and Michael A. Morrisey. "The Role of Physicians in Hospital Production." //Review of Economics and Statistics// 68 (1986), pp. 432-42.