Answer Happy

(c) Suppose Rhea has been experiencing shoulder pain, and has
the
following options for treatment as shown in the table below:
Potential therapies for shoulder pain
Treatment Regimen Total Cost Pain Reduction
1. Do Nothing €0 0 units
2. Oral Pain Killers €100 20 units
3. Acupuncture €200 20 units
4. Cortisone Injections €200 50 units
5. Physiotherapy €400 50 units
6. Surgery €500 30 units
7. Surgery with Rehabilitation €700 60 units
i. Plot these treatments on a graph with cost on the X axis and
pain
reduction units (PRU) on the Y axis. Create a cost
effectiveness
frontier. Label your graph clearly. Label the treatment regimens
with
the treatment numbers (1-7) to avoid clutter in your graph.
[Note: You do not need graph paper. Please make your graph
big.]
(5 marks)
ii. Assume that the value of a PRU is €10. Given this value,
which
treatment will be chosen? Label the chosen cost-effective treatment
on
your diagram and sketch the indifference curve that the
chosen
treatment lies on. Explain how you arrived at your answer
clearly.
[Note: The diagram does not have to be to scale. A labelled sketch
is
sufficient.]