Use the information in the following paragraph and Table 1 to answer questions 1 through 10. Assume 5 providers are willing to offer a medical care service in a market. These providers are described in Table 1. These providers vary in their quality level. Quality ranges in a scale from 0 (lowest) to 4 (highest). Quality services are costly to produce. Each unit of quality increases service cost by $80. Providers produce services if the price of the medical care service covers their cost. Individuals value quality and are willing to spend $100 per unit of quality within a service. Providers know their quality level, but individuals only know the average quality level of the providers in the market. Patients are willing to purchase a service if the expected value of the service is greater than or equal to the price of the service. Table 1: Provider Information Summary 1. 2. Provider 1 2 a. b. C. d. e. 3 4 5 How much does it cost Provider 4 to produce a medical care service? 240 320 80 a. b. C. d. e. 100 160 Service Quality Level 4 3 2 1 0 How much would an individual value a medical care service produced by Provider 3 if the individual knew Provider 3's service quality? 200 100 320 160 300 Cost to Produce a Unit of Service

Use the information in the following paragraph and Table 1 to answer questions 1 through 10. Assume 5 providers are willing to offer a medical care service in a market. These providers are described in Table 1. These providers vary in their quality level. Quality ranges in a scale from 0 (lowest) to 4 (highest). Quality services are costly to produce. Each unit of quality increases service cost by $80. Providers produce services if the price of the medical care service covers their cost. Individuals value quality and are willing to spend $100 per unit of quality within a service. Providers know their quality level, but individuals only know the average quality level of the providers in the market. Patients are willing to purchase a service if the expected value of the service is greater than or equal to the price of the service. Table 1: Provider Information Summary 1. 2. Provider 1 2 a. b. C. d. e. 3 4 5 How much does it cost Provider 4 to produce a medical care service? 240 320 80 a. b. C. d. e. 100 160 Service Quality Level 4 3 2 1 0 How much would an individual value a medical care service produced by Provider 3 if the individual knew Provider 3's service quality? 200 100 320 160 300 Cost to Produce a Unit of Service

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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