LSUS MHA 710 ECONOMICS 1 EXAM LATEST 2026/2027 &
PRACTICE QUESTIONS APPROVED QUESTIONS AND
CORRECT DETAILED ANSWERS WITH RATIONALES (100%
EXPERT VERIFIED SOLUTIONS) LATEST UPDATED
VERSION 2026 EDITION |GUARANTEED SUCCESS A+ |FULL
REVISED |INSTANT DOWNLOAD PDF
1. In healthcare markets, the concept of "moral hazard" refers to:
A) The tendency for providers to prescribe unnecessary treatments to increase
revenue
B) The situation where patients with insurance demand more healthcare services
than they would if uninsured
C) The risk that hospitals will merge to create monopolies
D) The ethical dilemma faced by physicians when rationing care
CORRECT ANSWER: B – Moral hazard occurs when insurance lowers the
marginal cost of care to the patient, increasing quantity demanded beyond the
efficient level. Rationale: Patients face a lower out-of-pocket price, so they
consume more services, leading to potential overuse and higher total spending.
2. If the cross-price elasticity of demand between two healthcare services is
positive, the services are:
A) Complements
B) Substitutes
C) Unrelated
D) Inferior goods
CORRECT ANSWER: B – Substitutes have positive cross-price elasticity,
meaning a price increase in one good raises demand for the other. Rationale: For
example, if the price of inpatient surgery rises, demand for outpatient surgery may
increase.
,3. Which of the following best describes "adverse selection" in health insurance
markets?
A) Healthy individuals buy more insurance than sick individuals
B) Insurers select only low-risk enrollees to maximize profits
C) Sicker individuals are more likely to purchase coverage, driving up premiums
for all
D) Providers select patients based on profitability
CORRECT ANSWER: C – Adverse selection arises from asymmetric
information; those with higher expected health costs self-select into coverage,
raising average premiums and potentially causing market failure. Rationale: This
can lead to a death spiral if healthy individuals drop out.
4. A hospital’s fixed costs include:
A) Medical supplies per patient
B) Nursing wages paid hourly
C) Depreciation on MRI machines
D) Lab tests ordered by physicians
CORRECT ANSWER: C – Depreciation is a fixed cost because it does not vary
with patient volume in the short run. Rationale: Fixed costs remain constant
regardless of output, unlike variable costs such as supplies or hourly wages.
5. In a perfectly competitive healthcare market, long-run economic profits are zero
because:
A) Government regulations cap prices
B) Firms can freely enter and exit, driving prices to average total cost
C) Demand is perfectly inelastic
D) Insurance eliminates price sensitivity
CORRECT ANSWER: B – Free entry and exit ensure price equals minimum
average total cost, yielding zero economic profit. Rationale: If existing firms earn
profits, new entrants increase supply, lowering price until profits disappear.
,6. Which of the following is an example of price discrimination in healthcare?
A) Charging the same copay for all primary care visits
B) Offering sliding-scale fees based on patient income
C) Setting a single price for all MRI scans
D) Billing all insurers at the same rate
CORRECT ANSWER: B – Price discrimination occurs when a seller charges
different prices for the same service based on willingness or ability to pay.
Rationale: Sliding-scale fees vary by income, capturing consumer surplus from
higher-income patients.
7. The law of diminishing marginal returns in a physician practice implies that:
A) Adding more physicians always increases total output proportionally
B) Beyond some point, each additional physician adds less to patient volume
C) Fixed costs eventually become variable
D) Marginal product of capital increases indefinitely
CORRECT ANSWER: B – Diminishing marginal returns occur when at least one
input (e.g., exam rooms) is fixed; adding variable inputs (physicians) eventually
yields smaller output gains. Rationale: Crowding and limited equipment reduce
productivity of each new physician.
8. If the price elasticity of demand for elective cosmetic surgery is -2.5, a 10%
increase in price would lead to:
A) A 25% increase in quantity demanded
B) A 25% decrease in quantity demanded
C) A 4% decrease in quantity demanded
D) No change in quantity demanded
CORRECT ANSWER: B – Elasticity = (%ΔQ) / (%ΔP). Solving: -2.5 = (%ΔQ) /
10% → %ΔQ = -25%. Rationale: Demand is elastic, so quantity demanded falls
proportionally more than the price rise.
, 9. A dominant hospital in a rural market faces a demand curve that is:
A) Perfectly elastic
B) Perfectly inelastic
C) Downward-sloping
D) Upward-sloping
CORRECT ANSWER: C – A dominant hospital has market power and faces a
downward-sloping demand curve; it can raise price without losing all patients.
Rationale: Unlike perfect competition, price increases lead to some, but not total,
loss of volume.
10. Which cost measure is most relevant for deciding whether to keep a hospital
open in the short run?
A) Average total cost
B) Average fixed cost
C) Marginal cost
D) Average variable cost compared to price
CORRECT ANSWER: D – In the short run, a firm should continue operating if
price exceeds average variable cost, covering variable expenses and contributing to
fixed costs. Rationale: If price falls below AVC, shutting down minimizes losses.
11. A community health center experiences economies of scale when:
A) Long-run average cost decreases as output increases
B) Long-run average cost increases as output increases
C) Marginal cost exceeds average cost
D) Fixed costs are zero
CORRECT ANSWER: A – Economies of scale mean output grows faster than
costs, reducing average cost. Rationale: Spreading fixed costs and specialization
lower per-unit costs as volume rises.
PRACTICE QUESTIONS APPROVED QUESTIONS AND
CORRECT DETAILED ANSWERS WITH RATIONALES (100%
EXPERT VERIFIED SOLUTIONS) LATEST UPDATED
VERSION 2026 EDITION |GUARANTEED SUCCESS A+ |FULL
REVISED |INSTANT DOWNLOAD PDF
1. In healthcare markets, the concept of "moral hazard" refers to:
A) The tendency for providers to prescribe unnecessary treatments to increase
revenue
B) The situation where patients with insurance demand more healthcare services
than they would if uninsured
C) The risk that hospitals will merge to create monopolies
D) The ethical dilemma faced by physicians when rationing care
CORRECT ANSWER: B – Moral hazard occurs when insurance lowers the
marginal cost of care to the patient, increasing quantity demanded beyond the
efficient level. Rationale: Patients face a lower out-of-pocket price, so they
consume more services, leading to potential overuse and higher total spending.
2. If the cross-price elasticity of demand between two healthcare services is
positive, the services are:
A) Complements
B) Substitutes
C) Unrelated
D) Inferior goods
CORRECT ANSWER: B – Substitutes have positive cross-price elasticity,
meaning a price increase in one good raises demand for the other. Rationale: For
example, if the price of inpatient surgery rises, demand for outpatient surgery may
increase.
,3. Which of the following best describes "adverse selection" in health insurance
markets?
A) Healthy individuals buy more insurance than sick individuals
B) Insurers select only low-risk enrollees to maximize profits
C) Sicker individuals are more likely to purchase coverage, driving up premiums
for all
D) Providers select patients based on profitability
CORRECT ANSWER: C – Adverse selection arises from asymmetric
information; those with higher expected health costs self-select into coverage,
raising average premiums and potentially causing market failure. Rationale: This
can lead to a death spiral if healthy individuals drop out.
4. A hospital’s fixed costs include:
A) Medical supplies per patient
B) Nursing wages paid hourly
C) Depreciation on MRI machines
D) Lab tests ordered by physicians
CORRECT ANSWER: C – Depreciation is a fixed cost because it does not vary
with patient volume in the short run. Rationale: Fixed costs remain constant
regardless of output, unlike variable costs such as supplies or hourly wages.
5. In a perfectly competitive healthcare market, long-run economic profits are zero
because:
A) Government regulations cap prices
B) Firms can freely enter and exit, driving prices to average total cost
C) Demand is perfectly inelastic
D) Insurance eliminates price sensitivity
CORRECT ANSWER: B – Free entry and exit ensure price equals minimum
average total cost, yielding zero economic profit. Rationale: If existing firms earn
profits, new entrants increase supply, lowering price until profits disappear.
,6. Which of the following is an example of price discrimination in healthcare?
A) Charging the same copay for all primary care visits
B) Offering sliding-scale fees based on patient income
C) Setting a single price for all MRI scans
D) Billing all insurers at the same rate
CORRECT ANSWER: B – Price discrimination occurs when a seller charges
different prices for the same service based on willingness or ability to pay.
Rationale: Sliding-scale fees vary by income, capturing consumer surplus from
higher-income patients.
7. The law of diminishing marginal returns in a physician practice implies that:
A) Adding more physicians always increases total output proportionally
B) Beyond some point, each additional physician adds less to patient volume
C) Fixed costs eventually become variable
D) Marginal product of capital increases indefinitely
CORRECT ANSWER: B – Diminishing marginal returns occur when at least one
input (e.g., exam rooms) is fixed; adding variable inputs (physicians) eventually
yields smaller output gains. Rationale: Crowding and limited equipment reduce
productivity of each new physician.
8. If the price elasticity of demand for elective cosmetic surgery is -2.5, a 10%
increase in price would lead to:
A) A 25% increase in quantity demanded
B) A 25% decrease in quantity demanded
C) A 4% decrease in quantity demanded
D) No change in quantity demanded
CORRECT ANSWER: B – Elasticity = (%ΔQ) / (%ΔP). Solving: -2.5 = (%ΔQ) /
10% → %ΔQ = -25%. Rationale: Demand is elastic, so quantity demanded falls
proportionally more than the price rise.
, 9. A dominant hospital in a rural market faces a demand curve that is:
A) Perfectly elastic
B) Perfectly inelastic
C) Downward-sloping
D) Upward-sloping
CORRECT ANSWER: C – A dominant hospital has market power and faces a
downward-sloping demand curve; it can raise price without losing all patients.
Rationale: Unlike perfect competition, price increases lead to some, but not total,
loss of volume.
10. Which cost measure is most relevant for deciding whether to keep a hospital
open in the short run?
A) Average total cost
B) Average fixed cost
C) Marginal cost
D) Average variable cost compared to price
CORRECT ANSWER: D – In the short run, a firm should continue operating if
price exceeds average variable cost, covering variable expenses and contributing to
fixed costs. Rationale: If price falls below AVC, shutting down minimizes losses.
11. A community health center experiences economies of scale when:
A) Long-run average cost decreases as output increases
B) Long-run average cost increases as output increases
C) Marginal cost exceeds average cost
D) Fixed costs are zero
CORRECT ANSWER: A – Economies of scale mean output grows faster than
costs, reducing average cost. Rationale: Spreading fixed costs and specialization
lower per-unit costs as volume rises.
