Presently, AFC has on its medical staff 10 doctors and 10 nurses. The daily wage
ID: 1241330 • Letter: P
Question
Presently, AFC has on its medical staff 10 doctors and 10 nurses. The daily wage of a doctor is $600, whereas a nurse is paid only $200 a day.a. Write the equation for the medical isocost of AFC.
b. It has been estimated that an additional doctor could increase the daily output of the clinic by 25 patients, while an additional nurse would increase the number of patients served in a day by only 10. What is the marginal rate of substitution between doctors and nurses?
c. Is the mix of doctors and nurses the clinic is presently using optimal? Explain.
d. Suppose the clinic wishes to expand its operation. Would you recommend that the clinic increase the numbers of its nurses and doctors equally? Explain.
e. Now suppose as a result of an increase in the number of foreign doctors immigrating into the country the daily wage of doctors has dropped to $400. Should this change the hiring practices of the AFC? Explain.
Explanation / Answer
a)equation=$600x+$200y where x is no of doctor y is no of nurse b)marginal rate doctor by nurse=25/10 1 doctor equivalent =2.5 nurse c)no optimal means 600x=200*2.5 x=500 x,which cant be true thus not optimal d)no of doctor should be increased such that for every increase in no of doctor ,no of nurses increases by 2.5 e)nurse no will outbalance doctor no for optimal