Describe the Medicare Prospective Payment System. What incentive problem was it designed to correct? What other incentive problem did it create?

2. Explain how public insurances such as Medicaid and SCHIP “crowd-out” private insurance. Why is it an issue?

3. Explain the products and inputs of a physician-firm/hospital. Also explain how the production of physician/hospital services allows some substitution of one type of input for another. You may raise some examples.

4. Describe the economies of scale, diseconomies of scale, and diseconomies of scope in physician-firms and hospitals, if any. You may make some examples for each of them.

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