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
When the marginal cost of hiring additional RNs is lower than the marginal cost of hiring additional MDs, it would be economically efficient for the clinic to use more RNs and fewer MDs, even if the marginal product of MDs (MPmd) is higher than the marginal product of RNs (MPrn).
To understand this concept, we need to consider the concept of marginal product and marginal cost.
The marginal product of a factor of production, in this case, MDs or RNs, refers to the additional output produced by employing one more unit of that factor while keeping other factors constant. In this case, the marginal product of MDs is higher than the marginal product of RNs, implying that MDs are more productive in terms of output.
On the other hand, the marginal cost of hiring an additional unit of a factor of production refers to the additional cost incurred by employing one more unit of that factor. The marginal cost of hiring MDs would typically be higher than the marginal cost of hiring RNs, as MDs generally have higher salaries due to their advanced training and qualifications.
Now, let's consider the circumstances under which it would be economically efficient to hire more RNs and fewer MDs despite the higher marginal product of MDs.
1. Cost Savings: If the cost of hiring an additional MD is significantly higher than the cost of hiring an additional RN, using more RNs can lead to cost savings for the clinic. This could be the case if the RNs are paid less than MDs and the difference in their salaries is substantial.
2. Supervision: Since the experienced nurses can perform certain medical tasks as well as the physicians, as long as they are supervised by MDs, the clinic can effectively utilize the skills of RNs under MD supervision. By reducing the number of MDs and increasing the number of RNs, the clinic can still maintain the quality of its medical services while reducing costs.
3. Utilization of MD's Abilities: By employing more RNs to handle routine and minor medical procedures, the MDs' time and skills can be better utilized for complex cases or emergencies where their higher level of training and expertise is crucial. This allows the clinic to allocate resources efficiently and optimize the overall productivity of the clinic.
In summary, if the cost savings from hiring more RNs outweigh the potential decrease in productivity due to their lower marginal product compared to MDs, it would be economically efficient for the clinic to use more RNs and fewer MDs. This decision can be justified by considering factors such as cost differentials, appropriate supervision, and optimal allocation of resources.