HEALTH ECONOMICS EXAMS SCRIPT 2025/2026
QUESTIONS AND SOLUTIONS GRADED A+ TIP
✔✔Short-run average variable costs (SAVC) - ✔✔short run total variable costs (STVC)
divided by the quantity of medical output
✔✔Short-run Average Fixed Cost (SAFC) - ✔✔STFC/q (q=level of output)
✔✔Short-run average variable costs (SAVC) - ✔✔STVC/q
✔✔Relation among short-run marginal, average variable, and average costs - ✔✔
✔✔Short-run economies of scale - ✔✔Exist when an increase in output results in less
than a proportionate increase in STVC, evidenced when a firm operates to the left of the
minimum point on the STVC curve, implies that in the short-run larger firms can produce
at a lower cost than smaller ones, dis-economies of scale are evidenced when firms
become too big and operate on the right side of the minimum of the STVC curve
✔✔Economies of scope - ✔✔exist if the joint cost of producing two outputs is less than
the sum of the costs of producing the two outputs separately, result from the joint
sharing among related outputs of resources, would shift supply curve downward
✔✔Marginal Rate of Technical Substitution - ✔✔the ration of the marginal productivities
of inputs and identifies the rate at which, at the margin, one input can substitute for the
other in the production process, MPx1/ MPx2, it measures the additional amount of x2
that is needed to replace one unit of x1 if one wishes to maintain the level of output
✔✔Cost-Minimizing Input Choice - ✔✔an efficient or optimal mix of RNs and LPNs is
where MPRN/wR = MPLPN/wL
✔✔Short-run Average Cost Curves & Long-Run Planning Curve - ✔✔
✔✔Comparative static analysis - ✔✔examines how changes in market conditions
influence the positions of the demand and supply curves and cause the equilibrium
levels of price and output to adjust
✔✔Effects of an increase in demand - ✔✔
✔✔Effects of an increase in supply - ✔✔
✔✔Comparative static analysis steps - ✔✔Draw a demand and supply model
representing the situation before the event took place, decide whether the economic
event being analyzed affects supply or demand, decide whether the effect on demand
or supply causes the curve to shift to the right or to the left and sketch the new demand
, or supply curve on the diagram, identify the new equilibrium and then compare the
original equilibrium price and quantity to the new equilibrium price and quantity
✔✔Excess (or economic) profits - ✔✔incentive for new firms to enter the industry
✔✔Economic losses - ✔✔incentive for firms to leave an industry
✔✔Normal profits - ✔✔when there are just enough revenues to cover opportunity cost
of every input, when normal profits exist the market is in long-run equilibrium
✔✔Long-run entry - ✔✔short-run market supply curve shifts right, lowers price and
eliminates excess profits
✔✔Long-run exit - ✔✔short-run market supply shifts left, higher prices and eliminates
economic losses
✔✔Typical perfectly competitive firm - ✔✔earns a normal profit in the long run
✔✔Product differentiation - ✔✔in monopolistic competition there can be a somewhat
differentiated product, a more differentiated product>a less elastic demand curve, in
short-run may earn economic profit, preferred location, different levels of quality,
advertising and other promotional strategies
✔✔Deadweight loss - ✔✔in a competitive market it happens when equilibrium isn't
reached and not all gains are exhausted, in a monopoly it happens when total output is
less than socially optimal
✔✔Equilibrium - ✔✔happens in perfectly competitive market where demand intersects
supply
✔✔Market Power - ✔✔the ability of a seller/supplier to influence price, rather than just
accept market prices
✔✔Consumer Surplus - ✔✔net benefit to consumers from engaging in free exchange,
difference between what the consumer would be willing to pay and what the consumer
actually has to pay, area under the demand curve but above price
✔✔Producer Surplus - ✔✔net benefit to producers from participating in free trade,
difference between the actual price received by the seller and the required price as
reflected in the marginal costs of production, area below market price but above the
supply curve, total net gains from trade=consumer and producer surplus
✔✔Perfectly Competitive Outcome - ✔✔
QUESTIONS AND SOLUTIONS GRADED A+ TIP
✔✔Short-run average variable costs (SAVC) - ✔✔short run total variable costs (STVC)
divided by the quantity of medical output
✔✔Short-run Average Fixed Cost (SAFC) - ✔✔STFC/q (q=level of output)
✔✔Short-run average variable costs (SAVC) - ✔✔STVC/q
✔✔Relation among short-run marginal, average variable, and average costs - ✔✔
✔✔Short-run economies of scale - ✔✔Exist when an increase in output results in less
than a proportionate increase in STVC, evidenced when a firm operates to the left of the
minimum point on the STVC curve, implies that in the short-run larger firms can produce
at a lower cost than smaller ones, dis-economies of scale are evidenced when firms
become too big and operate on the right side of the minimum of the STVC curve
✔✔Economies of scope - ✔✔exist if the joint cost of producing two outputs is less than
the sum of the costs of producing the two outputs separately, result from the joint
sharing among related outputs of resources, would shift supply curve downward
✔✔Marginal Rate of Technical Substitution - ✔✔the ration of the marginal productivities
of inputs and identifies the rate at which, at the margin, one input can substitute for the
other in the production process, MPx1/ MPx2, it measures the additional amount of x2
that is needed to replace one unit of x1 if one wishes to maintain the level of output
✔✔Cost-Minimizing Input Choice - ✔✔an efficient or optimal mix of RNs and LPNs is
where MPRN/wR = MPLPN/wL
✔✔Short-run Average Cost Curves & Long-Run Planning Curve - ✔✔
✔✔Comparative static analysis - ✔✔examines how changes in market conditions
influence the positions of the demand and supply curves and cause the equilibrium
levels of price and output to adjust
✔✔Effects of an increase in demand - ✔✔
✔✔Effects of an increase in supply - ✔✔
✔✔Comparative static analysis steps - ✔✔Draw a demand and supply model
representing the situation before the event took place, decide whether the economic
event being analyzed affects supply or demand, decide whether the effect on demand
or supply causes the curve to shift to the right or to the left and sketch the new demand
, or supply curve on the diagram, identify the new equilibrium and then compare the
original equilibrium price and quantity to the new equilibrium price and quantity
✔✔Excess (or economic) profits - ✔✔incentive for new firms to enter the industry
✔✔Economic losses - ✔✔incentive for firms to leave an industry
✔✔Normal profits - ✔✔when there are just enough revenues to cover opportunity cost
of every input, when normal profits exist the market is in long-run equilibrium
✔✔Long-run entry - ✔✔short-run market supply curve shifts right, lowers price and
eliminates excess profits
✔✔Long-run exit - ✔✔short-run market supply shifts left, higher prices and eliminates
economic losses
✔✔Typical perfectly competitive firm - ✔✔earns a normal profit in the long run
✔✔Product differentiation - ✔✔in monopolistic competition there can be a somewhat
differentiated product, a more differentiated product>a less elastic demand curve, in
short-run may earn economic profit, preferred location, different levels of quality,
advertising and other promotional strategies
✔✔Deadweight loss - ✔✔in a competitive market it happens when equilibrium isn't
reached and not all gains are exhausted, in a monopoly it happens when total output is
less than socially optimal
✔✔Equilibrium - ✔✔happens in perfectly competitive market where demand intersects
supply
✔✔Market Power - ✔✔the ability of a seller/supplier to influence price, rather than just
accept market prices
✔✔Consumer Surplus - ✔✔net benefit to consumers from engaging in free exchange,
difference between what the consumer would be willing to pay and what the consumer
actually has to pay, area under the demand curve but above price
✔✔Producer Surplus - ✔✔net benefit to producers from participating in free trade,
difference between the actual price received by the seller and the required price as
reflected in the marginal costs of production, area below market price but above the
supply curve, total net gains from trade=consumer and producer surplus
✔✔Perfectly Competitive Outcome - ✔✔
