Health Econ

Fall 2020 – Quiz 2 – 5 points

Answer both questions. I only want one well turned paragraph as an answer for each question. This is an open book, open notes, open internet quiz but do not consult with your fellow students (or with others).

1. Marginal costs are easy to get wrong. Sometimes one adds in expenses that don’t change with the decision and sometimes one forgets to add in relevant expenses. Suppose you want to have your guest bedroom repainted. What are the marginal costs of hiring someone to do it? What are the marginal costs of doing it yourself? Which is cheaper? (I don’t want actual numbers. Rather, briefly discuss the elements that make up the marginal costs in each case.)

2. The Kilgore et al. paper concluded that the 2007 marginal cost to Medicare of a hip fracture (using the incremental approach) was $31,310. That is approximately $39,125 in 2020 dollars. Every empirical paper has some strengths and weaknesses. Briefly discuss one important strength and one important weakness.