Question

5) Using the closed-staff physician control model developed by Pauly-Redisch, explain how the optimal number of physicians is determined.  Use a graph.

Please answer and don't use answers from previously posted questions.

Answer 1

closed-staff physician control model developed by Pauly-Redisch states that physicians will hire an additional staff member as long as each additional member increases the incomes of other physicians. This implies that the marginal revenue product should be greater than average revenue product.

The Y axis shows the revenue in terms of incomes of doctors and X axis shows the number of staff members. Red line shows marginal revenue product and green line shows average revenue product. So at X= 6 (approx) the marginal and average product of revenues are almost same. And this should be the optimal number of physicians hired

35 30- 25 20- 15 10 5 -10 15 0 10 -5 20