Category 1
True or False. An industry is larger than a producing sector.
False.
A producing sector classification for grouping goods and services and the firms that produce them is broader than an industry classification.
Examples: The "healthcare sector" is a broad "umbrella term" providing sector classification encompassing all companies involved in health related goods and services: examples: Hospitals (managed healthcare), medical devices, insurance, pharmaceuticals, hospital supply chain manufacturing. Company examples: Johnson & Johnson, United Health, RGH, Pfizer
History of change: 100 years of change - healthcare has evolved in the U.S., from loosely organized individual practitioners into integrated "medical industrial complex"
In the 1920s, healthcare was more of a domestic service industry where doctors worked in isolation with more simple remedies and home solutions. Had many "General Practitioners" (a.k.a. "The Country Doctor") and hospitals were scientific centers for only the most serious cases. Today, we have a specialized ecosystem of large systems, insurance giants and bio tech firms.
We have also see the rise of the "middle man" in health care in reference to the health insurance industry. In 1920s, patients paid primarily "out of pocket" before the rise of private insurance in the 1930s and Medicare and Medicaid government insurance in the 1960s. Healthcare IT: EHRs, Telehealth, AI Diagnostics and modern specialization and divisions of labor (NP, RN, LPN, CNA, CRNA, APRN in nursing titles) make up the world today.
A production function shows the type and amount of output that can be attained from a set of inputs when those inputs are combined in a specific way. True or False.
True.
Not about truth and laws, not about the full body of knowledge, not about maximizing benefits, it's about understanding the type and amount of output that can be produced from a given set of inputs (land, labor, capital, entrepreneurship). This applies to any industry or sector, assumes a given level of technology.
In healthcare we can look at:
Outputs: Number of patients treated successfully, Number of surgeries completed successfully, patient days of care...
Inputs: Labor (doctors, nurses, techs...), Capital (buildings, ORs, MRIs, Ventilators), Medical Supplies (PPEs, Surgical Tools), and Tech (Electronic Health Records, Software, Education Protocols),
In a production function we can say for example: 5 surgeons, 10 nurses, 2 ORs, and standard surgical equipment leads to output of 20 successful surgeries. Questions hospital leadership asks: will adding more nurses to payroll increase our successful surgery rates? Different healthcare industries (Pharma, Bio Tech, Hospitals) have different Production Functions.
The efficient method of production is...
The least cost method
Productive efficiency happens when a good or service is produced using the least cost combination of inputs to achieve a certain output. It's about not wasting resources, and operating along one's "Production Possibilities Frontier"
Healthcare: The least cost method of production is about delivering high quality care, using the most efficient combination of staff, tech, and supplies for example.
A large health system might look into optimizing skills by using Nurse Practitioners and Physician Assistants take on the responsibility of more routine tasks, and in turn free up Physicians to focus on more complex cases. This allows the hospital to produce the same "output" (a completed successful patient visit) at a lower labor cost (NP has lower salary than MD).
Technology in a Productivity Function is...
The body of knowledge that exists about production and its processes.
The disappearance of land line telephones in every home is an example of...
Creative Destruction: Caused by the development of smart phone technology.
Healthcare: Digital Radiology and picture archiving and now Electronic Communication Systems have largely eliminated need for physical X-Ray Films. We also see wearable devices replacing bulky monitoring equipment.
The Manufacturing Sector
Today, the services sector is the dominating sector, but for most of the 1900s it was manufacturing. Millions more Americans worked in manufacturing in the 1950s than do today. In the 1700s and 1800s most of U.S. economy was agriculture based with railroad, steel and oil industry coming to dominate in the decades after the civil war in the 1860s.
After World War II, 1945, the U.S., produced more than half of the world's manufactured goods. The 1970s through the 1990s saw "Deindustrialization" and the losing of manufacturing jobs due to global competition.
In healthcare: Policy changes and new economic trends have changed healthcare. In the 1940s, there is the rise of employer based health insurance, and in the 1960s federal money expands healthcare sector. 2018: healthcare represents 17.7% of US Economy as a share of our GDP.
Is the Price of Inputs something that is given in a Production Function for a particular product?
No.
Prices are excluded because a Production Function is strictly about technical/physical relationship between the quality of inputs (labor and capital for example) and the maximum quantity of output.
Production Functions also have a technology focus: it describes how efficiently inputs are converted into goods and services based on specific technology.
Healthcare: A OBGYN center will have researchers in administration using Production Functions to see how many nurses and beds are needed to safely deliver a certain number of babies, regardless of how much nurses and doctors are paid.
Two businesses in the same industry are also in the same producing sector. True or False.
True.
Technology is important in a relationship with production because...
With new technology, old forms of production can become obsolete, it cane define the range of production methods that a company can choose from, and technology impact a firm's profits.
In the Long run all factors of production are variable, but no in the Short run. True or false.
True. A Firm can vary the amounts of all its factors of production in the Long Run.
Healthcare: A small local clinic seeing a sudden spike in patients:
Variable Factors: Can hire more nurses, pay overtime, buy more supplies and machines.
Fixed Factors: Can't instantly buy back more exam rooms, "physical capital" can't change quickly.
Long Run: After a year of high demand from patients, the Clinic can expand. Everything is variable; the clinic can lease the suite next door, install a permanent MRI machine, overhaul staffing, etc.
Each of the following would be in the same sector of the US Economy except for...
Mining for coal
Raising cash crop such as corn
Commercial fishing
Automobile manufacturing
Automobile manufacturing
The first three choices belong to the primary sector of extracting raw resources, direct production from raw natural resources: namely agriculture, fishing, forestry and mining. The last choice, automobile manufacturing, is different as it's in the manufacturing industry. Just like "selling corn and milk in a supermarket" is in a different sector than raising/growing corn. Selling corn is in the services sector, and growing it is in the agricultural sector.
How does the Long Run differ from the Short Run?
In the Long Run, all Factors of Production (land, labor and capital and entrepreneurship) are variable in the long run, but not in the short run.
There are no fixed costs in the long run.
When output is equal to 0 in the long run, total cost is 0. But not in the short run because there are still fixed factors that must be covered.
How would you explain the production function?
It's a function that describes the relationship between inputs (labor and capital) and the maximum amount of output that the inputs together can produce.
All costs in the Long Run are...
Variable
All factors of production are either fixed or variable in the...
Short Run.
At least one factor must be fixed.
Fixed Factors: The physical hospital building, specialized expensive MRI machines, number of licensed surgical suites.
Variable: Number of on-call RNs, medical supplies like IV bags, hours worked by administrative staff, these can all be increased quickly in order to handle an influx of patients.
True or False. The Manufacturing sector is the largest sector of the US Economy today.
False.
The services sector is now the largest producing sector in the US Economy accounting for over 75 percent of the total Gross Domestic Product.
Healthcare continues to grow regardless of broader economic downturns (aging population and demand for medical services).
Healthcare now employs 22 million Americans and 12 percent of labor force.
Healthcare output: Hospital care, Physician and Clinical Services, Specialized care, and retail prescription drugs.
From website: Becker's Hospital Review: 66% of healthcare "could be" automated by 2030. There is "massive shift" to "homebased case" and "precision and prevention."
What are example of "diseconomies of scale" for a business?
Difficulty in managing a large organization
The amount of time it is required to run, command and pass information across a large organization.
As an organization grows, there is the need to hire more managers.
When average total cost is less than marginal cost, the average total costs is rising. Why?
Because the cost of producing the next unit is greater than the average of all previous units. This higher incremental cost pulls the overall average up, similar to how a high grade on a new test raises a cumulative grade average.
Short Run costs "behave" as they do because of...
The Law of Diminishing Returns
Healthcare: Hiring more nurses for a fixed number of beds increases costs exponentially while producing small marginal improvements in patient care, leading to higher marginal costs.
In the long run, how would you describe "Fixed Factors of Production"?
Fixed Factors of Production DO NOT change in amount as the level of output changes.
Fixed Factors of Production have costs that must be paid regardless of well the company or firm is doing financially.
Healthcare: In the short run, a hospital's fixed factors include physical building and diagnostic equipment such as an MRI machine.
A hospital must pay monthly lease on a MRI machine and building property and payroll tax regardless of how well the hospital is performing financially.
In the long run, the hospital can decide whether to expand its new wing or sell off equipment, all factors become variable.
A firm that manufacturers swimming caps, and a firm that manufacturers the machines that make the swimming caps, would be in the same...
Same sector "manufacturing;" but they would be in different industries.
Both are engaged in the physical transformation of materials into one. Both are engaged in different industries; one is in the "apparel" industry, and the other can be said to be in the "industrial machines" industry.
Healthcare: A hospital and a pharmaceutical company would be in the same producing sector, different industries: one in the managed healthcare services industry, the other company in the Pharmaceutical industry.
If a firm's total cost is greater than 0 when it's output is 0, it is operating in the long run. True of False.
False.
If a firm's total cost is greater than 0 when output is 0, it means the firm has fixed costs. Fixed costs are often associated with the short run. This means the firm has costs to cover, such as rent or equipment, even when not producing. In the long run, all costs are variable, and typically, a firm that has permanently ceased production (0 output) will have 0 total costs as it exits.
Average fixed cost continually decreases as the level of output increases. True or False.
True.
Because the total fixed costs remain constant in the short run, increasing the quantity produced (output) spreads those fixed costs over more units, causing the average cost per unit to decline continuously.
Why, as output increases in the short run, does total cost increase slowly at first and then more rapidly as greater levels of output are reached.
In healthcare terms: think of a hospital ER experiencing an increase in patient volume. As the number of patient volume goes up, from an original low level, initially, the hospital ER uses its fixed variables, its fixed capacity to be more efficient. The total cost rises slowly. One extra patient may only require a small additional cost in supplies and resources.
But as patient volume increases (output increases) and more and more factors of production are rapidly needed to handle this. The ER now has to pay more RNs, hire agency/travel nurses for example, order more supplies. Total cost goes up. Overall, the Law of Diminishing Returns applies here as we have too many nurses in the long run leading to other inefficiencies. Less output returned for each increase added input.
The monthly payment that a business must make on a leased building for the next 5 years is an example of...
A fixed cost.
It cannot be paid off if the business produces nothing. Hospitals have "lease agreements" on buildings that can't change in the short run.