Posted by Matty64 on .
The Qwik Serve Clinic always has three M.D.s and eight R.N.s working at its 24-hour clinic, which serves customers with minor emergencies and ailments. The clinic has hired an efficiency expert to examine its operations and make suggestions for reducing costs. For some of the medical procedures done at the clinic, experienced nurses can perform the medical tasks approximately as well as the physicians can, as long as the nurses are supervised by MD's. Since MD's are more highly trained than nurses, the marginal product of MD is higher than the marginal product of RN's. The manager of the clinic is confused by the efficiency consultant's report because the report recommends using more RN's and fewer MD's to lower the cost of providing a given level of medical services. Under what circumstnces would it be economically efficient for this clinic to use more RN's and fewer MD's (given MPmd>MPrn)?
simply, because RNs are paid less.
Maximize efficiency where MPmd/Wmd = MPrn/Wrn
where Wmd = wages paid to MDs, Wrn = wages paid to RNs