Question
Over the last 2 years, people have been working from home. Often, individuals are not careful about their home office and can develop back pains
- Over the last 2 years, people have been working from home. Often, individuals are not careful about their home office and can develop back pains due to improper equipment and bad posture. Consider an individual, Rob, who has developed back pains and has four options for treatment which are listed below:
Treatment Regimen
Total Costs
Paid Reduction Units (PRU)
Do Nothing
0
0 units
Invest in better equipment
50
10 units
Cortisone Injection
350
12.5 units
Five sessions with a physio to build core strength
500
25 units
Treatment Regimen | Total Costs | Paid Reduction Units (PRU) |
Do Nothing | 0 | 0 units |
Invest in better equipment | 50 | 10 units |
Cortisone Injection | 350 | 12.5 units |
Five sessions with a physio to build core strength | 500 | 25 units |
a. Plot these four treatments on a cost-pain reduction axis. Construct a cost effectiveness frontier by connecting potentially cost-effective treatments. Hint: Y-axis is PRU and X-axis is Costs.
b. Find the range of valuations for a pain reduction unit that Rob could have for which cortisone injections is the cost-effective treatment relative to other treatments. Using the diagram generated in (a), explain your answer.
c. Assume that the value of reducing one unit of pain for Rob is 15 dollars. Draw an indifference curve in the diagram generated in (a) and identify which treatment regimen Rob should pursue to maximise his utility.
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