Econ 317
ECON 317 SPRING 2020 – INDIVIDUAL ASSIGNMENT 5
TO BE SUBMITTED VIA COURSESPACES BY 11:59 PM ON FEBRUARY 25th, 2020
Name (First, Family)
Last 3 digits of Student ID#
TO SPEED UP MARKING, PLEASE ANSWER THE QUESTIONS IN THE FORMS AND SPACES PROVIDED. THE T.A. RESERVES THE RIGHT TO NOT MARK ANY QUESTIONS THAT ARE NOT ANSWERED IN THE EXPECTED LOCATIONS.
By submitting this assignment you agree to the following honor code, and understand that any violation of the honor code may lead to penalties including but not limited to a non-negotiable mark of zero on the assignment:
Honor Code: I guarantee that all the answers in this assignment are my own work. I have cited any outside sources that I used to create these answers in correct APA style.
Marking scheme –
Make sure you answer all the questions before handing this in
!
Question
Marks
1
a
12
2
a
6
3
a
6
4
a
4
b
4
c
2
d
4
e
1
Total
39
1. [Reading] Read the following article:
Gulati, S., During, D., Mainland, J. & Wong, A. M. F. (2019). Using the Time-Driven Activity-Based Costing Model in the Eye Clinic at The Hospital for Sick Children: A Case Study and Lessons Learned. Healthcare Quarterly, 20(4), 48.53. Retrieved from
https://www-longwoods-com.ezproxy.library.uvic.ca/content/25423
Note that the ‘Figure 2’ the article refers to is not in the main body (or PDF) of the article itself: you must retrieve it from
https://www-longwoods-com.ezproxy.library.uvic.ca/articles/images/HQ_Vol20_No4-Gulati-Fig2
a. (12 marks) Write a 3-2-1 report in the usual fashion, using the form available on the ECON 317 Coursespaces page.
2. [Costing] This question is intended to give you a gentle introduction to costing. Your friend Sophia is a real estate agent in Victoria. She is 35 years old and lives alone in a 480 square foot studio apartment that she rents furnished. (As a real estate agent, of COURSE she’s brought up the square footage in conversation.) She recently (February of this year) gave you a gift of a delicious loaf of home-baked banana bread. When you asked for the recipe, she pointed you to ‘Anna’s Classic Banana Bread’ on the Food Network web site. Being an economics student, you decided to calculate what the total cost of the loaf of banana bread was. You don’t have access to Sophia’s financial information, but you do know she shops at Thrifty’s, so that’s where you obtained your price data.
The recipe[footnoteRef:1] calls for (quoted from the recipe itself): [1: Olson, A. (n.d.). Anna’s Classic Banana Bread [Web Page]. Retrieved from https://www.foodnetwork.ca/recipe/annas-classic-banana-bread/19344/ ]
1 ½ – 1 ¾ cups (375 – 400 g) mashed ripe bananas (3-4 bananas) [Assume it’s exactly 400 g]
6 Tbsp (90 g) unsalted butter, melted
½ cup (100 g) granulated sugar, plus extra for sprinkling [assume that’s an extra 5 g]
½ cup (100 g) packed light brown sugar
1 large egg, at room temperature
1 tsp (5 mL) vanilla extract
1 ½ cups (225 g) all-purpose flour
1 tsp (5 g) baking soda
¼ tsp (0.75 g) salt
1 cup (250 mL) chocolate chips [This should weigh 170 g, according to Aqua-Calc[footnoteRef:2].] [2: https://www.aqua-calc.com/calculate/food-volume-to-weight/substance/candies-coma-and-blank-semisweet-blank-chocolate-coma-and-blank-made-blank-with-blank-butter-blank–op-cup-blank-chips-blank–op-6-blank-oz-blank-package-cp- ]
It also requires 75 minute of cooking time, about 15 minutes of pre-heating time and about 15 minutes of preparation time. Since preparation can be done while the oven warms up, those two activities together should take a total of 15 minutes. The recipe also calls for 20 minute of cooling time, but since this doesn’t require supervision you decide not to count those 20 minutes as part of the time spent ‘working’ on the recipe.
According to Expatistan[footnoteRef:3], a cost-of-living comparison web site, the monthly rent for a furnished 480 square foot studio apartment in a “normal” area in Victoria is $1,269. The monthly utilities for that same studio apartment are about $87. There are 29 days, and therefore 696 hours, in the month of February (2020 is a leap year!). [3: Cost of Living in Victoria, Canada [Web Page]. (2020). Retrieved from https://www.expatistan.com/cost-of-living/victoria-canada ]
Sophia is a 35-year-old, female, full-time real estate agent. According to the latest Statistics Canada data[footnoteRef:4] available, the average hourly wage rate for women aged 25 to 54 working full time in real estate[footnoteRef:5] in
British Columbia
in 2019 was $29.23. [4: Statistics Canada. (2020, February 9). Employee wages by industry, annual (Table 14-10-0064-01) [Online Data Set]. Retrieved from https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1410006401 ] [5: The wage category is actually ‘Finance, insurance, real estate, rental and leasing’.]
Looking over the Thrifty’s web site[footnoteRef:6], you find the following prices for the ingredients listed. [6: https://www.thriftyfoods.com/ Prices retrieved February 9, 2020.]
Bananas: $0.33 for 190 g (Why a unit of bananas is 190 g is anyone’s guess.)
Fraser Valley Unsalted Butter: $4.19 for 250 g
Rogers Fine Granulated Sugar: $3.79 for 1000 g (1 kg)
Rogers Best Brown Sugar: $3.99 for 1000 g (1 kg)
Island Gold Large White Eggs: $3.69 for 12
Club House Artificial Vanilla Extract: $6.49 for 500 mL
Robin Hood All Purpose Flour: $3.99 for 1000 g (1 kg)
Arm & Hammer Baking Soda: $1.99 for 500 g
Windsor Iodized Table Salt: $2.49 for 1000 g (1 kg)
Compliments Milk Chocolate Chips: $3.99 for 270 g
a. (6 marks) Use the information above to calculate an estimate the cost of the loaf of banana bread you were given. Give your answer to the nearest cent. To keep things simple, i) ignore taxes, ii) assume rent + utilities is a good measure of the opportunity cost of using the studio apartment, iii) assume the median hourly wage rate given above is a good estimate of the opportunity cost of Sophia’s time.
Cost of the loaf of banana bread: $_________________
Work:
3. [Costing Canadian Health Care] For this question, we’re going to re-do example A-1 in CADTH’s Guidance Document for the Costing of Health Care Resources in the Canadian Setting, but for British Columbia in 2020, instead of
Saskatchewan
in 2016. Since in BC, Botox injections must be given by a medical professional[footnoteRef:7], and because the original example missed the fact that there is more than 1 injection per treatment, there will be a few extra steps. [7: Oetter, H.M. (2015). Registrar’s message. College Connector, 3(2). Retrieved from https://www.cpsbc.ca/for-physicians/college-connector/2015-V03-02/01 ]
To help the TA mark your assignment, please fill in your answers in the blanks provided. Please note that the first blank you have to fill in is for the TOTAL cost, which you will not be able to calculate until the end of the exercise.
a. (6 marks) TOTAL DRUG AND INJECTION COST PER ONABOTULINUMTOXINA (BOTOX) TREATMENT FOR OVERACTIVE BLADDER ADMINISTERED BY A PHYSICIAN IN BRITISH COLUMBIA:
$ ___________________
Now for the steps that will get you to that answer….
A. Obtain the unit drug costs from the
B.C. Drug Formulary Search Page
: $______________
You can do this by copy-pasting ‘ONABOTULINUMTOXINA’ into the Generic/Brand name field at
https://pharmacareformularysearch.gov.bc.ca/faces/Search.xhtml
(Typing in ‘Botox’ in the same field also works, since that’s the brand name.)
B. Since BC’s formulary only approves the 100 U dispensable unit, this step in the original example isn’t needed. If you checked the cover page of the Botox monograph (below), you’d find that 50, 100 and 200 unit versions are available.
C. Obtain information on the recommended administration from the
product monograph
:
How many units of Botox? ________
How many injections in the treatment? ___________
What type of injection: intra-venous, or intra-muscular? _____________
You can find the monograph at
https://www.allergan.ca/en-ca/products/prescription
– you want the one for Botox® (OnabotulinumtoxinA), NOT the cosmetic version below it.
Once you have the monograph, use the Table of Contents to find the start of the section on DOSAGE AND ADMINISTRATION. Once in the right section, scroll down until you find the sub-section on ‘Overactive Bladder’. You’ll know you’re on the right page when you see a cut-away illustration of a bladder.
The units of Botox needed are clearly listed in that section. Those units are, however, spread out across a number of injections. The text should make it very clear how many injections there are, and of what type.
D1. Calculate the (Botox) acquisition cost based on administration: $________
This one’s easy. You already have the cost per unit of Botox, and the number of units required. Multiply one by the other to get the total cost.
D2. Calculate the cost of injections needed for administration: $______________
Since the injections are being administered by a physician, we’ll need to find out how much they charge for an injection. To do this, you need to look up the relevant fee in the MSC Payment Schedule. You can find the latest version (updated November 1, 2019) at
https://www2.gov.bc.ca/gov/content/health/practitioner-professional-resources/msp/physicians/payment-schedules/msc-payment-schedule
Once you’ve opened the Payment Schedule, look for ‘Injections’ under ‘Relevant Services’, and make a note of the cost per injection of the relevant type[footnoteRef:8] (intramuscular or intravenous). [8: Some of you may have noticed that the Payment schedule has several entries specifically for Botulinum toxin injections. Unfortunately, none of these are for treatment of an overactive bladder. Those fees only apply when the injections are administered for different diagnoses.]
Fee per injection: $_________
To obtain the cost of injections needed for administration, multiply the fee per injection by the number of injections you found in part C.
E. Botox acquisition cost after markup and dispensing fees: $_____________
BC prices do not include markup or dispensing fees. You can find B.C.’s pharmacy markup allowance by consulting Section 5.6 of BC’s Pharmacare Policy Manual. The latest version is dated 2012 but has been continually updated when needed. You can find it at:
https://www2.gov.bc.ca/gov/content/health/practitioner-professional-resources/pharmacare/pharmacare-publications/pharmacare-policy-manual-2012
To determine the maximum allowable markup, you will have to check whether Botox is considered a High-Cost Drug. Follow the relevant hyperlink(s) in the appropriate section of the Policy Manual (5.8 High-Cost Drugs Policy) to do so.
Botox doesn’t fall under the Reference Drug Program (RDP) or Low Cost Alternative (LCA) programs. (I checked so you don’t have to! If you want to double check, you can do so at
https://www2.gov.bc.ca/gov/content/health/practitioner-professional-resources/pharmacare/pharmacies/low-cost-alternative-lca-and-reference-drug-program-rdp-data-files
Maximum allowable markup for Botox: ____ %
Dispensing fees are found in section 8.2 of the same Pharmacare Policy Manual. Assume the maximum reimbursable dispensing fee is charged.
Maximum dispensing fee reimbursed by Pharmacare: $_________
To obtain the Botox acquisition cost after markup and dispensing fees, take the Botox acquisition cost from part D1, multiply it by (1 + markup %)[footnoteRef:9], and add the dispensing fee. [9: So for example, if the cost from D1 is $100 and the markup is 10%, you’d multiply $100 by 1.1 = 1 + 10% = 1 + 0.1.]
F. It’s finally time to calculate the total cost. Add together the cost of injections (D2) to the cost of the Botox itself after markup and dispensing fees (E), and write your final answer in the blank provided at the top of this question. All done!
4. [Efficiency] This question will walk you through a simple example of using DEA to calculate efficiency.
Refer to Lecture 18 and the sample answer for details
.
The table below was created using CIHI data for 2017[footnoteRef:10]. In terms of our model, output, Q = Perceived Health (in %), K = Per Capita nominal public spending on in 2016 and L = Per Capita nominal public spending on physicians in 2016. [10: Data from L and K were taken from Series E2 and E4 from the data tables for CIHI’s National Health Expenditure Trends, 1975 to 2019. Retrieved from https://www.cihi.ca/en/national-health-expenditure-trends-1975-to-2019, while data for Q was taken from CIHI, Your Health System in Depth, Perceived Health (Percentage) 2015 to 2016, retrieved from https://yourhealthsystem.cihi.ca/hsp/indepth?lang=en#/indicator/031/2/C9001/ ]
Province/Territory |
L/Q |
K/Q |
Newfoundland and Labrador |
$ 14.10 |
$ 38.52 |
Prince Edward Island |
$ 14.63 |
$ 34.32 |
Nova Scotia |
$ 14.44 |
$ 33.40 |
New Brunswick |
$ 14.57 |
$ 33.41 |
Quebec |
$ 14.98 |
$ 22.06 |
Ontario |
$ 15.86 |
$ 23.12 |
Manitoba |
$ 16.37 |
$ 31.28 |
Saskatchewan |
$ 16.41 |
$ 29.23 |
Alberta |
$ 17.44 |
$ 30.30 |
British Columbia |
$ 14.80 |
$ 25.61 |
Yukon Territory |
$ 18.89 |
$ 41.95 |
North West Territories |
$ 7.87 |
$ 94.21 |
Nunavut |
$ 17.14 |
$ 119.11 |
a. (4 marks) Using the table above, determine which provinces and territories are on the ‘isoquant’ as measured by a DEA envelope. (Hint: check for dominance and extended dominance. Un-dominated provinces/territories are on the frontier. As shown in the sample answer, you can check for dominance by making sure that K/Q goes down when L/Q goes up, and for extended dominance by making sure that the slope of the line connecting points on the frontier never goes down – becomes more negative – as L/Q goes up.)
Provinces/Territories on the Envelope/’isoquant’:
Work (if you don’t show your work, you can’t get part marks for partially correct answers!):
b. (4 marks) Create a scatter plot (x-y graph) that includes ONLY the provinces/territories on the DEA ‘isoquant’ as specified in your answer to part a., plus Nunavut (if it isn’t already included). You should have K/Q on the vertical axis, and L/Q on the vertical axis. Draw the DEA envelope (our ‘isoquant’) on the diagram. Don’t forget the vertical and horizontal parts of the isoquant.
Diagram:
We’ll spend the rest of the question calculating the output efficiency of Nunavut.
c. (2 marks) What is the equation of the line from the origin (L/Q , K/Q) = (0,0) to the point on your graph representing Nunavut, (17.14 , 119.11)? How long is the line segment from the origin to the point representing Nunavut? (Hint: use the
Pythagorean theorem
.) Show your work.
Note: this line segment corresponds to line segment OP on Slide 19 of the lecture notes for Lecture 18.
Equation of the Line: _____________________________
Length of the line segment: ________________________
Work:
d. (4 marks) What is the equation of the DEA envelope where it is crossed by the line in part c.? What is the length of the line segment from the origin to this crossing point? Show your work.
Hint: You can
find the equation of a line given two points
on that line.
Note: the crossing point corresponds to point B on slide 19 of the lecture notes for Lecture 18. The line segment corresponds to OB on the same slide.
Equation of the DEA envelope: _____________________________
Length of the line segment: ________________________________
Work:
e. (1 marks) Use your results from parts c. and d. to calculate the Output Efficiency of Nunavut. (This corresponds to OB / OP on Slide 19 of Lecture 18.). Show your work.
Output Efficiency of Nunavut: ___________________
Work:
1
ECON 317 ASSIGNMENT 5 SAMPLE ANSWER FOR QUESTION 4
Consider the (fictional) data below.
Province L/Q K/Q
A 35 28
B 47 1
C 5 34
D 33 86
E 63 70
F 31 63
G 47 20
H 19 24
I 65 23
J 7 79
a. Using the table above, determine which provinces are on the ‘isoquant’ as measured by
a DEA envelope.
(Hint: check for dominance and extended dominance. Un-dominated
provinces/territories are on the frontier. As shown in the sample answer, you can check
for dominance by making sure that K/Q goes down when L/Q goes up, and for extended
dominance by making sure that the slope of the line connecting points on the frontier
never goes down – becomes more negative – as L/Q goes up.)
Provinces on the Envelope/’isoquant’: C,B
Note the data we’re given: the L and K are scaled to be in per unit of output terms. If we
are on the technical efficiency frontier (the ‘isoquant’), that means that as (for example)
L/Q goes up, we should be seeing K/Q go DOWN. If not, then we’re looking at a situation
where one province takes more L AND K to produce of unit of output than another
province. The province that takes more of both is DOMINATED.
Let’s check for dominance by sorting our table in order of increasing L/Q, and making
sure we eliminate any cases where K/Q goes up when L/Q goes up.
2
To help me, I’ve created a column labeled ‘Inc. K/Q’, for Incremental K/Q. This is just the
K/Q of the province we’re looking at, minus the K/Q of the one above it. This should
always be negative for a list of un-dominated provinces.
Provinces sorted by L/Q:
Province L/Q K/Q Inc. K/Q
C 5 34 –
J 7 79 45
H 19 24 -55
F 31 63 39
D 33 86 23
A 35 28 -58
B 47 1 -27
G 47 20 19
E 63 70 50
I 65 23 -47
We now know we can rule out provinces J,F,D,G and E. Let’s reduce our list and look
again:
Province L/Q K/Q Inc. K/Q
C 5 34 –
H 19 24 -10
A 35 28
4
B 47 1 -27
I 65 23 22
3
We can cut out A and I. Culling the list again leaves:
Province L/Q K/Q Inc. K/Q
C 5 34 –
H 19 24 -10
B 47 1 -23
We can’t rule out any of the provinces on this list using the current rule. The reason why we
COULD rule out all provinces except for C,H and B is easily seen if we plot the provinces on the
appropriate diagram:
Remember what we’re plotting: every single one of these points represents a way of
producing the same, normalized amount of output. Province H has (L/Q, K/Q) = (19, 24).
This means it uses 19 units of L and 24 units of K to produce one unit of output1.
The DEA envelope plots the efficient way of producing one unit of output. Since H uses
19 L and 22 K to produce one unit of output, anything that uses more than 19 L AND more
than 22 K to produce one unit of output can’t be efficient – it can’t be on our frontier. On
our graph, the area representing these inefficient points is everything above and to the
1 Note the silent assumption about the functional form. This DEA approach assumes that if F(K,L) = Q, then
F(2K,2L) = 2Q, and F(K/Q,L/Q) = Q/Q = 1.
4
right of H. When we’re checking for dominance in the way we did above (making sure
incremental K/Q is negative, we’re eliminating points that are ‘up and to the right’ of any
other point.
That’s not enough, though. We also need to check for extended dominance. We need to
make sure that none of the provinces in our list is dominated by a linear combination of
other provinces on our list. That is, we need to check that no province left on our list is
up and to the right of a line joining two other provinces still on our list.
Thankfully, we can do this rigorously by looking at the slopes of the lines connecting the
points on our candidate list.
A technically efficient isoquant has a very particular rotated ‘smile’ shape that you should
already be familiar with. The isoquant SHOULD be (nearly) vertical on the left of the graph,
and (nearly) horizontal on the right of the graph, smoothly transitioning between slopes
to get from one to the other.
In our ‘connect the dots’ version, what this means is that the slope of the lines connecting
two points on our list should always be rising (becoming less negative). Calculate the
slopes between adjoining points on the list, using slope = rise/run, and then check to make
sure that slope is becoming less negative as you go down the list. If it’s becoming MORE
negative, then you’re looking at a list with an extended dominated option on it. Eliminate
the province(s) that caused the slope to fall, and try again.
Province L/Q K/Q
Inc.
K/Q
Inc. L/Q Rise/Run
Inc.
Slope
C 5 34 – – – –
H 19 24 -10 14 -0.71
B 47 1 -23 28 -0.82 -0.11
The slope between H and B is more negative than the slope between C and H. This means that
H is extended dominated by a linear combination of C and B. This can be seen on the graph, if
you zoom in appropriately.
5
Here you can see that H is clearly above and to the right of a line connecting C and B, so it is
extended dominated.
Our final DEA ‘isoquant’ consists of just C and B.
Province L/Q K/Q
C 5 34
B 47 1
6
b. Create a scatter plot (x-y graph) that includes ONLY the provinces on the DEA ‘isoquant’ as
specified in your answer to part a., plus F (if it isn’t already included). You should have K/Q on
the vertical axis, and L/Q on the vertical axis. Draw the DEA envelope (our ‘isoquant’) on the
diagram. Don’t forget the vertical and horizontal parts of the isoquant.
We’ll spend the rest of the question calculating the output efficiency of F: (L/Q,K/Q) = (31,63).
a. What is the equation of the line from the origin (L/Q , K/Q) = (0,0) to the point
representing F, (31, 63)? How long is the line segment from the origin to the point
representing F? (Hint: use the Pythagorean theorem.) Show your work.
Note: this line segment corresponds to line segment OP on Slide 19 of the lecture notes
for Lecture 18.
Equation of the Line: K/Q = (63/31) x L/Q = 2.03 x L/Q
Length of the line segment: 70.21
Work:
https://www.mathsisfun.com/pythagoras.html
7
General equation of a line: Y = mX + b
m = Slope = Rise/Run = 63/31 = 2.03
b = Vertical axis intercept = 0 (since (0,0) is a point on the line).
Therefore, Y = 2.03 x X + 0 = 2.03 x X
The length of OF is the hypotenuse of a triangle with sides 63 and 31. By the
Pythagorean Theorem, 632 + 312 = 4,930 = OF2, so OF = 49301/2 = 70.21
b. What is the equation of the DEA envelope where it is crossed by the line in part c.? What
is the length of the line segment from the origin to this crossing point? Show your work.
Hint: You can find the equation of a line given two points on that line.
Note: the crossing point corresponds to point B on slide 22 of the lecture notes for
Lecture 8. The line segment corresponds to OB on the same slide.
Equation of the DEA envelope: K/Q = -0.79 x L/Q + 37.93
Length of the line segment: 30.49
http://www.coolmath.com/algebra/08-lines/12-finding-equation-two-points-01
8
Where the line from the origin to F crosses the DEA envelope, the DEA envelope is a line
segment connecting the points C (5,34) and B (47,1).
The slope of this line is rise/run. Rise = (1 – 34) = -33, Run = (47 – 5) = 42.
Slope = -33/42 = -0.79 (approx.).
Our line is of the form y = mx + b, so b = y – mx. This is true for any point (x,y) on the
line, so without loss of generality, let’s pick C = (5,34).
b = 34 – (-33/42) x 5 = 37.93 (approx.)
The equation is (approximately) y = -0.79x + 37.93
Now we need to find the point where the two line segments (OF and CH) cross. We’ll
call this point S. At S, the equations for both lines are equal, so
-0.79x + 37.93 = 2.03x (the equation on the right is from part c.).
Solving for X, X = 13.46. Plugging X = 13.46 into Y = 2.03X, we get Y = 27.35 (approx.)
The point of intersection is therefore S = (13.46, 27.35) (to two decimal places).
Using the Pythagorean theorem as before, the length of line segment OS is the square
root of 13.462 + 27.352, which is 30.49.
(If you get a slightly different result when checking my math at home, that’s because I was
using full precision on Excel all the way through the calculations. Don’t worry if there’s a
bit of rounding error on your assignment answer. The TA knows to allow for that.)
9
c. Use your results from parts c. and d. to calculate the Output Efficiency of F. (This
corresponds to OB / OP on Slide 19 of Lecture 18.). Show your work.
Output Efficiency of F: 0.43
Work:
In terms of our points, we are looking for the ratio OS/OF.
We know OS = 30.01, and OF = 70.21, so the output efficiency of point F is
OS/OF = 30.01 / 70.21 = 0.43 (to two decimal places)
PURPOSEFUL READING (3-2-1) REPORT Version 2.0
Lightly Adapted from a template by Geraldine Van Gyn.
Question 1:
In your own words
, what are the 3 most important concepts, ideas or issues in the reading? Briefly explain why you chose them.
Concept 1 (In your own words) (2 marks)
Concept 2 (In your own words) (2 marks)
Concept 3 (In your own words) (2 marks)
Question 2: What are 2 concepts, ideas or issues in the article that you had difficulty understanding, or that are missing but should have been included?
In your own words
, briefly explain what you did to correct the situation (e.g. looked up an unfamiliar word or a missing fact), and the result. Cite any sites or sources used in APA format.
Issue 1 (In your own words) (1 mark)
Citation 1 (in APA format) (1 mark)
Issue 2 (In your own words) (1 mark)
Citation 2 (in APA format) (1 mark)
Question 3: What is the main economic story of the reading? (Economics studies the allocation of scarce resources.)
Story (In your own words) (2 marks)