Case study: Pricing Decisions.

Chapter 1 Case study: Pricing Decisions.This chapter introduces usto the concept of elasticity, or more particularly, point elasticity of demand, as it applies to health care.Therefore, I would like to explore a small, quantitative exercise that introduces us to how a point elasticity of demand is estimated to help a medical service provider make an economic decision. Because elasticity is such an important concept in economics, we will explore it and related concepts in greater detail in later chapters.More detailed directionsand comments:Here is more on the case study: Pricing Decisions. Consider ananesthesiology group that provides medical services to local hospitals in a metropolitan area and also a rural part of TN. The director of this group is considering price increases foranesthesia services forboth of these areas. Assumefor this example that this group has some degree of pricing power,implying and that thismarket structure can be characterized by imperfect competition (remember that perfect competition implies no pricing power, making those firms “price-takers.”)Although pricing decisions don’t always translate to consumers for a medical procedure involving anesthesia, assume for this example that hospitals have discretion in their ability to react to price changes.To help the director make her decision, she obtains sample market data on their customers about its market and whether or not this program will increase its revenues. Using the data provided in the excel file entitled Chap 1 Econ of Health Case Study Elast (Student). As part of preparing for this case study, you may want to review the tutorial videos and tutorial journals on regression entitled Intro to Regression video for the Econ of Healthcare and anextension tutorial journal (not a video) entitledIntro to Regression video part 2, which includes an example using excel. Finally, a the tutorial video made explicitly for this case study entitled Chap 1 Econ of Health Case Study Elast. is available also.

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